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What's the Difference Between Bankruptcy and Consumer Proposal?

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    If you’re searching for “bankruptcy vs consumer proposal” know that both options are designed for people who are unable to pay their debts as they become due. Both consumer proposal and bankruptcy are administered by a Licensed Insolvency Trustee. In deciding between a bankruptcy or consumer proposal, it’s important to understand both the processes first. Consumer Proposal and Personal Bankruptcy are both legal processes that provide individuals with ways to eliminate their debt. Both processes are regulated under the Federal Bankruptcy and Insolvency Act. There is no “one size fits all” solution that works for everyone. Each person’s financial situation is unique and, because of this, different options work better in different scenarios. It is good idea to learn about the two processes in the planning stages and the best way is to do a free consultation with a Licensed Insolvency Trustee. The Trustee will thoroughly review your situation and professionally advise you about benefits and drawbacks of debt settlement options available to you.  It’s important to note that consumer proposal and bankruptcy are not the only two options available to those who are struggling with debt. A trustee can help you understand all your options. In the end, it’s not about bankruptcy or consumer proposal, it’s about finding the right option for you. Licensed Insolvency Trustees offer a free, one-hour no-obligation in-person or phone consultation to get started.  During the meeting, the Trustee will look over the details of your financial situation (your debts, your income and your assets, as well as your monthly household budget) and then provide you with an analysis of your situation, highlighting the options available for your specific situation. It’s important to remember that Licensed Insolvency Trustees are bound by a strict code of ethics (through CAIRP, a member organization of Licensed Insolvency Trustees across Canada) and are required to explain all possible solutions to you and answer any questions you might have. That means that by the time your meeting has concluded, 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 a Consumer Proposal or a Bankruptcy. While these are both legal processes, they are different in several key ways, which leads to many people searching for terms such as “bankruptcy versus consumer proposal” to figure out the differences. Understanding your own financial situation as well as the two processes can help you with this important decision. While the chart above highlights some of the similarities and differences between a Bankruptcy filing and a Consumer Proposal filing, this is only a starting point. For anyone dealing with crushing debt, harassing phone calls and letters from collection agencies or a wage garnishment, meeting with one of our Licensed Insolvency Trustees is the best way to ensure you have all the facts so you can make an informed decision about how best to deal with your debts. Please call us today toll-free at 1 (844) 507-7526, or fill in this form to request a free consultation, so we can get you the help you need to clear up that debt once and for all. With over 70 offices across Ontario we are sure to have an office close to where you live or work. We look forward to assisting you.

    About Bankruptcy

    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 this debt and start fresh. Filing for bankruptcy must be done with a Licensed Insolvency 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 people believe, you do not lose everything when you file for personal bankruptcy. In most provinces and territories, you’re allowed to keep specific assets that are deemed necessary to live a basic lifestyle. Different provinces have different lists of what you can protect and the values of those assets that are considered exempt. Your trustee will let you know which assets you will be able to keep, and which could be realizable before you sign any paperwork. When you file for personal bankruptcy, a note is placed on your credit report. This note remains there for seven years from the date you filed for 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-time being bankrupt and if you do not have to pay surplus income payments. In the case of an increase in your net household income during the bankruptcy period, something called a surplus income payment may be required. This is calculated based on a government formula that considers the cost of living for families of various sizes. If you begin to earn an amount each month that exceeds that allowable limit, the government requires you, through the Licensed Insolvency Trustee, to make additional payments comparable to 50% of any overage in the calculation. But don’t worry - your Licensed Insolvency Trustee will review your net household income and expenses each month during the bankruptcy period (anywhere from 9 to 36 months in length) and inform you quickly if surplus income payments are ultimately required.

    About Consumer Proposals

    A Consumer Proposal is also a legal process and it must be filed with a Licensed Insolvency 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 down a portion of their debt in monthly payments over a set time. Once the Consumer Proposal is successfully paid down, the remaining outstanding debt is forgiven. Once you file a Consumer Proposal, your unsecured creditors have 45 days to decide if they wish to accept your offer. If many of your creditors vote to accept it, then all are bound by its terms (even if they voted against it or chose not to vote at all). 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 situation. In addition, once your Proposal is accepted, the amount you pay does not change, even if your income changes or you receive an inheritance, lottery winnings or other financial gains. 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. Both a Consumer Proposal and a Bankruptcy include legal protection from your unsecured creditors. Once you begin either process, all communication with your creditors is handled through your trustee. Unsecured creditors cannot call you, garnish your wages or take any legal action against you. Imagine the Bankruptcy and Insolvency Act (The Act) behaving like a giant wall that sits between you and your creditors. The creditors cannot get through the wall and you sit safely on the other side, protected by the Federal and Provincial legislation that comprises The Act, as well as the Trustee’s License. Together they work to protect you throughout the process so no creditor can take legal action against you. When it comes to deciding between a Consumer Proposal or a Bankruptcy, it is easier to plan once you have all the details. Speaking with a Licensed Insolvency Trustee can help you understand how each of these legal processes will affect you.