Choosing Between a Consumer Proposal or a Bankruptcy
Both consumer proposal and bankruptcy are legal processes that provide individuals with ways to eliminate their debt. Many people wonder which of these options they should choose. In reality, there is no “one size fits all” solution that works for everyone. Each financial situation is unique and, because of this, different options work better for different people. In order to make a decision for yourself, it’s a good idea to learn about the two processes. An excellent way to do this is to meet with a trustee in bankruptcy. A licensed trustee can review your situation and let you know which options are available to you. They can also provide you with details about these options. Consumer proposal or bankruptcy may be possible solutions.
Most trustees offer a free consultation where they can look over your situation and provide you with details on the options available. Bankruptcy trustees are bound by a strict code of ethics and are required to inform you of all possible solutions, not just those that they can help you with. This means that you will have the information you need to make an informed decision about your financial future.
Two debt relief solutions that could be available to you are consumer proposal or bankruptcy. While these are both legal processes, they are different in several key ways.
Bankruptcy is a legal process that provides those who have high levels of debt with no or limited ability to repay these, with an opportunity to eliminate most or all of this debt and start fresh. Filing for bankruptcy must be done with a licensed trustee. You can only include unsecured debt in a bankruptcy.
When you file, your trustee will review your situation and determine the cost of your bankruptcy. He or she will also ensure that you are able to keep all exempt assets. Despite what many think, you do not lose everything when you file for bankruptcy. In most provinces and territories, you are allowed to keep certain assets that are deemed necessary to live a basic lifestyle. Different provinces have different lists of what you are able to keep and the values of these assets that are considered exempt. Your trustee will let you know which assets you will be able to keep before you file.
When you file for bankruptcy, a note is placed on your credit report. This note remains there for six years after you have been discharged from bankruptcy. The length of the actual bankruptcy process (from when you file until you are discharged) varies. In most cases, you can be discharged in nine months if it is your first bankruptcy and if you do not have to pay surplus income payments.
Surplus income payments may be required if you make more than the level that is set by the federal government for your family size. Your trustee will review your income and expenses each month during bankruptcy and inform you if surplus income payments are required.
About Consumer Proposals
A consumer proposal is also a legal process and it must be filed with a bankruptcy trustee who will act as the proposal administrator. However, unlike bankruptcy, with a consumer proposal you make an offer to your unsecured creditors to pay them on terms you can afford. Like a bankruptcy, only unsecured debts can be included in a consumer proposal. Most consumer proposals see a person offer to pay a portion of their debt in monthly payments over a set period of time. At the conclusion of the consumer proposal process, the remaining outstanding debt is forgiven.
Once you file a consumer proposal, your unsecured creditors have 45 days to decide whether or not they wish to accept the offer. If the majority of your creditors vote to accept it, then all are bound by its terms. Consumer proposals can be completed in anywhere between one and five years. A note is placed on your credit report when you start your proposal and it remains there for three years after your proposal is complete.
In general, a consumer proposal does not involve losing any assets. However, your trustee can provide you with details regarding your particular situation. In addition, once your proposal is accepted, the amount you pay does not change, even if your income changes. You can even pay off your proposal early (or even in one lump sum) if you would like. There are no penalties for doing so.
Legal Protection from Creditors
Both consumer proposal and bankruptcy include legal protection from unsecured creditors. Once you begin either process, all communication with your creditors is done through your trustee. Unsecured creditors cannot call you, garnish your wages or take any legal action against you.
When it comes to deciding between consumer proposal or bankruptcy, it is easier to make a decision once you have all of the details. Speaking with a trustee can help you understand how each of these legal processes will affect you.