Factors Determining a Bankruptcy versus a Consumer Proposal

Sometimes sitting down with a debtor and going through their financial affairs; and trying to determine whether a bankruptcy or a consumer proposal is in their better interest is not always as clear cut as one would think. Fluctuations in income; outstanding tax returns (possible refunds or debt owing); equity in assets are just some of the factors that can make the difference in whether a consumer proposal is a more viable option for the person than a bankruptcy. Large tax refunds can make the difference in whether someone chooses to file a bankruptcy versus a proposal. In a consumer proposal a debtor keeps all assets, but in a bankruptcy the tax refunds are considered an asset for the benefit of the creditors.

Debtors are sometimes relieved to know that they can file a consumer proposal and avoid having a bankruptcy on their credit report. A proposal is reported on an individual’s record for three years after the completion date of the proposal. If there has been a previous bankruptcy, filing a second bankruptcy would mean the credit report will be affected for 14 years from the date of discharge. Current legislation has a minimum 24 month period before a debtor can be discharged from a second bankruptcy. That would make it a minimum of 16 years on the credit report.

All facts, every piece of information given by the debtor, are taken into consideration when determining whether a bankruptcy or a consumer proposal is a better option.