Comparing a Bankruptcy to a Consumer Proposal
Two common methods of debt relief are bankruptcy and consumer proposals. Both of these options are legal processes. Both processes are administered by a licensed insolvency trustee (who also acts as a proposal administrator in the case of a consumer proposal). However, there are differences between the bankruptcy and proposal processes. It’s important to know as much as possible about these two options before you make a decision for your financial future. The more information you have, the more prepared you will be to make a decision that works for your particular situation.
Information on Bankruptcy
As mentioned, bankruptcy is a legal process. It is an option for someone who is unable to meet his or her financial commitments and pay bills as they become due. The bankruptcy process gives honest yet unfortunate debtors an opportunity to eliminate most (if not all) of their debts and start fresh. Filing for bankruptcy can put you in a situation where you can start to rebuild your financial life.
When you file for bankruptcy, your insolvency trustee reviews your financial situation in order to calculate what assets might be available for distribution to your creditors to meet your debt obligations. The trustee will also review all of your assets and determine which assets are considered exempt. Contrary to popular belief, you do not lose all of your assets when you file for bankruptcy. However, if you have a lot of assets, you may lose some. Each province states which assets are required to live a basic lifestyle and exempts these assets from bankruptcy. Your trustee will ensure that you are able to keep all of your exempt assets.
During the bankruptcy process, you are required to provide the trustee with monthly information on your income and expenses. You may be required to make surplus income payments if your income is greater than the level set by the federal government for your family size. You trustee will inform you if this is required.
Depending on your circumstances, you could be discharged from bankruptcy in nine months, as long as it is your first bankruptcy and you do not have to make surplus income payments. If you are required to make these payments, you can be discharged from bankruptcy in 21 months, if it is your first bankruptcy. Once you have been discharged, your trustee will file your discharge paperwork. Bankruptcy remains on your credit report for six years after you have been discharged.
Information on Consumer Proposal
A consumer proposal is also a legal process. However, unlike bankruptcy, a consumer proposal sees you make an offer to your unsecured creditors to pay them on terms that you can afford. In most consumer proposals, you offer to pay a portion of the debt that you owe in monthly payments over a set period of time. Once all payments have been made and you have fulfilled all of the duties of the proposal, the remaining outstanding debt is eliminated. A consumer proposal can be helpful for those who are able to pay back some of what they owe, but not the entire amount.
Once you file your offer to your unsecured creditors, they will have 45 days to vote on whether or not they choose to accept your offer. If the majority of your unsecured creditors vote to accept, then all are bound by the terms of the consumer proposal.
A consumer proposal does not typically involve losing any assets. In addition, surplus income payments do not apply. Once your consumer proposal has been accepted, the monthly payments do not change. However, you can choose to pay off your proposal more quickly if you get a raise, a lump sum or money or your financial situation changes. There is no penalty for doing so.
Consumer proposals can last between one and five years, depending on the terms of the proposal. Once the proposal is completed, you will receive your Certificate of Full Performance. A consumer proposal remains noted on your credit report for three years after it has been completed.
Choosing Between a Bankruptcy and a Consumer Proposal
When it comes to making a choice between a bankruptcy and a consumer proposal, this decision will depend on your particular financial situation. Each person is different and each person’s finances are different. Meeting with a trustee in bankruptcy can help you understand the options that are available to you and discover the difference between a bankruptcy and a consumer proposal. You can then use this information to help you make an informed choice for your financial future.