The Benefits Of A Consumer Proposal Versus A Bankruptcy

Consumer proposals and bankruptcies are both government legislated options which can provide you with relief from significant debt problems.  In addition, both types of proceedings are administered by a government licensed Trustee and provide a legal stay of proceedings such that creditors must discontinue harassing collection calls, garnishment or other legal proceedings.

Determining which, if either, option is an appropriate solution in your own unique situation depends on a number of variables such as the nature and amount of your debts, breadth and value of assets, along with as your monthly income and expenses (i.e. cash flow). Below are some advantages to filing a consumer proposal versus a bankruptcy:

• In a bankruptcy your assets are assigned to the Trustee and are under their control during the process.  While many assets are subject to provincial property exemptions, it is possible that certain assets (e.g. RESPs or equity in a personal residence) could be liquidated. Conversely, in a consumer proposal your assets do not vest in the Trustee / Proposal Administrator and instead remain in your care and control. For example, if you unexpectedly received an inheritance, lottery winning or some other form of financial windfall before being discharged from bankruptcy, it would most likely be considered property of your bankruptcy estate whereas in a proposal, your assets vest with you and you would be able to retain the windfall.
• A consumer proposal involves fewer “duties” and is less intrusive than bankruptcy. In a consumer proposal you are required to make your payments in accordance with the terms of proposal (e.g. $200/month for 48 months) and complete two debt counselling sessions. In a bankruptcy, you are required to pay a Trustee fee or surplus income payment (whichever is applicable), complete two debt counselling sessions, submit monthly income and expenses statements and submit your tax information to the Trustee for completion of your personal income tax return in the year of bankruptcy. If you are entitled to a tax refund in the bankruptcy year, that refund will be deemed property of the bankruptcy estate whereas in a consumer proposal you would be entitled to keep the refund.
• Consumer proposals offer a greater degree of flexibility than bankruptcy. For example, most consumer proposals involve a monthly payment anywhere from 1 year (12 months) to 5 years (60 months) and typically there is no financial penalty for paying it out early. Bankruptcy involves prescribed time periods before you can be discharged such as 9 months (no surplus) or 21 months (with surplus) for a first-time bankruptcy and 24 months (no surplus) or 36 months (with surplus) for a second-time bankruptcy.
• A proposal is typically on your credit report for approximately three years after you complete the proposal terms and receive a Certificate of Full Performance. In that final three year period your creditor score is elevated as an acknowledgment that the proposal was successfully completed. For example, a 3-year proposal would be on your credit report for approximately six years. A first time bankruptcy remains on your credit report for approximately six years after discharge, which translates to approximately seven years. Note that a second-time bankruptcy remains on your credit report for approximately 14 years after discharge.
• In a consumer proposal your creditors will typically receive a greater recovery on their liability than if you were to file an assignment in bankruptcy.

Contact an MNP office in your area for a free assessment of your own unique financial situation conducted by a government licensed Trustee in Bankruptcy / Proposal Administrator.  While there is no single solution that is best for everyone, our Trustee’s will work directly with you to find a solution that best suits your needs.