What are the differences between bankruptcy and a consumer proposal?
In short
- Bankruptcy involves handing over seizable assets to pay your debts while a consumer proposal is an agreement reached with your creditors.
- After declaring bankruptcy, you make monthly payments based on your income. Under a consumer proposal, you make fixed payments.
- A first bankruptcy lasts for nine or 21 months while a consumer proposal process can take up to five years. Bankruptcy remains on your credit report for a longer time.
- Bankruptcy is often perceived as a last resort. It allows you to start from zero.
Your personal situation will determine what the best option is for you.
Personal bankruptcy and a consumer proposal are two legal solutions to help you clear your debts. Both options have advantages and disadvantages. Here’s all you need to know so you can make the right decision when the time comes.
What exactly is bankruptcy?
Bankruptcy involves handing over your seizable assets to pay your debts. This allows you to start over.
What is a consumer proposal?
A consumer proposal is an agreement reached with your creditors that allows you to settle most of your debts. A licensed insolvency trustee at Raymond Chabot, for example, takes care of negotiating on your behalf.
The primary advantage of a consumer proposal is the ability to pay a lower amount each month.
How do each of these solutions impact your assets?
If you declare bankruptcy:
- Your assets can be seized and liquidated by the trustee, unless they’re leased or held as collateral on a loan.
- The funds from this sale are then distributed among your creditors.
- A portion of your salary may also be withheld to pay off your debts.
- However, you should note that certain types of assets such as RRSPs and life insurance are protected.
If you file a consumer proposal: you can keep your assets.
How long does a bankruptcy process last?
A first bankruptcy can last for nine or 21 months and a second bankruptcy for either 24 or 36 months. The duration depends on your income.
How long does a consumer proposal process last?
The process can take up to five years.
How do bankruptcies and consumer proposals affect your credit rating?
Bankruptcy: A first bankruptcy remains on your credit report for six or seven years and subsequent bankruptcies are removed after 14 years.
Consumer proposal: The timeline is significantly shorter. A consumer proposal remains on your credit report for up to three years after your final payment or six years after you sign the proposal.
What payments do you have to make to settle your debts?
Bankruptcy: You make monthly payments based on your income.
Consumer proposal: The trustee negotiates a fixed payment amount with your creditors.
How do bankruptcies and consumer proposals affect your emotional health?
Bankruptcy used to be a taboo subject, but that’s changing. However, it can cause significant emotional stress and shame.
A consumer proposal is often perceived as a less extreme process.
Bear in mind that if you opt for a consumer proposal and your finances no longer allow you to honour the terms, you can file for bankruptcy at any time.
In all cases, only a licensed insolvency trustee has the skills and know-how to help guide you through the process. Contact one of our insolvency counsellors today! You’ll regain peace of mind and can look to the future with confidence.
Summary
Consumer proposal
Assets: You retain your assets.
Duration: Up to five years.
Credit rating: During the agreement term and up to three years after the final payment.
Payments : Fixed monthly payments.
Personal bankruptcy
Assets: Non-exempt assets are seized.
Duration: First bankruptcy: nine or 21 months. Second bankruptcy: 24 or 36 months.
Credit rating: First bankruptcy: six or seven years. Subsequent bankruptcies: 14 years.
Payments : Monthly payments based on your income.
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