Consumer Proposal Or Bankruptcy: Which Is Right For Me?

If you find yourself facing insurmountable debt, there are options available to you. Through either a consumer proposal or a declaration of bankruptcy, you creditors. Each option shares similarities and differences, so it’s important to investigate which solution is right for you.

Bankruptcy And Consumer Proposal: What’s The Difference?

Filing for bankruptcy is a formal legal process that involves assigning your assets to a licensed insolvency trustee (LIT). The role of the LIT is to divvy up your assets based on their worth and use the money to pay your creditors. Furthermore, during this process, your wages will be garnished as well.

A consumer proposal is also a legally binding process involving a LIT. Instead of garnishing your wages and surrendering your assets to pay back creditors, the LIT comes up with a plan that you will follow to pay your creditors a percentage of what is owed to them. These payments are usually made monthly and the terms of a proposal cannot be longer than five years.

Both processes will affect your credit rating, but rest assured you can work to repair your credit over time.

Which Is Right For You?

To determine if you would benefit from filing for bankruptcy or a consumer proposal, ask yourself the following questions:

1. How much do you owe? If you owe more than $250,000 (or $500,000 if you are filing with a spouse/partner) you will not qualify for a consumer proposal. Since there are maximum debt levels that can be included in your proposal, if you owe more than the highest allowed amount, bankruptcy is the better option.

2. Would you be able to make any monthly payments? With a consumer proposal you are required to make small monthly payments towards your debt. If you can make the monthly payments, then a consumer proposal is a viable solution. However, if you cannot afford to commit to monthly payments, then bankruptcy will need to be your option.

3. When do you want to be debt-free? Because you are put on a payment plan to pay off what you owe, consumer proposals take some more time to eliminate debt. On the other hand, with bankruptcy, you could receive an automatic discharge in nine months. With that being said, not everyone is entitled to an automatic discharge and it could take you even longer to be debt-free than if you were to have a consumer proposal.

4. Can you give up your assets? When you declare bankruptcy, you will need to surrender your assets. You’ll be entitled to basic necessities and essential items you need to continue going to work, but you’ll need to transfer your personal assets, for instance your home (if you own it). With a consumer proposal, you can keep your assets as long as you make the payments outlined in the proposal.

If you’re still unsure as to which option best suits your needs, contact us. We can help you gain control back over your financial future.