Difference Between Consumer Proposal and Bankruptcy

The main difference between consumer proposals and personal bankruptcy is that a consumer proposal allows you to keep more of your assets, has less of an effect on your credit score and will stay on your record for 3 years instead of 6 years for a first-time bankruptcy.

Consumer proposals and personal bankruptcy are common debt relief solutions in Canada. A consumer proposal is a formal agreement with your creditors on the terms of repayment of your debts. Bankruptcy involves you surrendering your assets to eliminate your debt repayment obligations.

What is a Consumer Proposal?

A consumer proposal is a formal agreement between you and your creditors. It is administered by a Licensed Insolvency Trustee, who help you negotiate the terms of your debt repayment. The agreement states that you will pay part or all of your debt—which must be less than $250,000, excluding your mortgage—at a reduced rate over a specific period of time.

This legally binding agreement gives you protection from debt collectors and stops wage garnishments. Interest on your debt stops accumulating the day you file.

What is Bankruptcy?

Bankruptcy is a structured legal process that relieves you of your debts from creditors. A Licensed Insolvency Trustee will be assigned to your bankruptcy claim to take control over your assets (with limited exceptions), investigate your affairs, and monitor your progress for bankruptcy duties.

If you complete these duties—which include attending two credit counseling sessions and filing monthly reports on your income and expenses—you will typically be discharged from your debt in 9 or 21 months.

Consumer Proposal vs. Bankruptcy: Deciding Between the Two

Both solutions are legally binding, but a consumer proposal is less severe than bankruptcy. For example, a consumer proposal requires regular payments of a fixed amount agreed upon by you and your creditors. With bankruptcy, monthly payments may vary depending on your income.

A consumer proposal also allows you to keep more of your assets, has less of an effect on your credit score, and will stay on your record for three years (instead of six years for a first-time bankruptcy).

Between the two solutions, a consumer proposal has less of an effect on your credit score. However, depending on your unique situation, bankruptcy could be a more suitable solution.

Getting Professional Help for Making the Right Decision

Whether you are considering a consumer proposal or bankruptcy, finding the right debt solution is not always easy. Get impartial advice from one of our expert Licensed Insolvency Trustees to learn more about which option fits your situation best.

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