If you have been facing financial challenges you may have been exploring financial options to deal with debt. Two of these options include a consumer proposal and bankruptcy. We are often asked the differences between filing a consumer proposal vs. bankruptcy in Canada, which prompted us to write this article.
Before discussing the differences between filing a consumer proposal vs. bankruptcy it is important to understand that both are legal processes to deal with debt that are administered by a trustee in bankruptcy. The trustee in bankruptcy is an officer of the court appointed by the Superintendent of Bankruptcy who oversees the Bankruptcy and Insolvency Act and regulates the insolvency professionals who administer it.
The trustee in bankruptcy administers bankruptcies and consumer proposals; they do not represent you in the process. One of the trustee’s responsibilities is to make a fair deal that pays your creditors the most money possible. Trustees also earn more money based on the size of the consumer proposal that you file. The larger the payments you make under the consumer proposal they negotiate, the more money they make administering it.
A bankruptcy or consumer proposal is a viable method to use to deal with debt. Both will stop most collection action, will leave you with a single monthly payment, and will stop the interest accruing on unsecured debts.
When comparing the differences between filing a consumer proposal vs. bankruptcy the option you choose will generally depend on your income and assets. Those with minimal income, no assets and a significant amount of unsecured debt may be a better candidate for a bankruptcy. One big drawback with bankruptcy is that, if your income surpasses a certain level, your trustee may assess you as having surplus income. Having surplus income means that, if your income exceeds the threshold, not only will your monthly payment in bankruptcy increase but the trustee may also require that you remain bankrupt longer. The same applies to equity in assets, such as a home. If you have equity in your home the trustee will assess surplus income which will increase the amount that you have to repay in bankruptcy. This is why higher income earners or those with assets often opt for consumer proposals.
Many individuals don’t realize that in a bankruptcy or consumer proposal you can generally keep your assets, homes or cars included.
Consumer proposals involve offering your creditors a proposal that includes a sum of money that you will repay as a final settlement on your debts. Consumer proposals are based on your income, cash flow, and the ability to make a monthly payment over 4 to 5 years. Some benefits of a consumer proposal include:
· It can be paid off early – a bankruptcy can’t.
· It is a final agreement - bankruptcies will continue until your bankruptcy trustee discharges you. If your income increases, it could increase the amount you have to repay in your bankruptcy and the length of time that you are bankrupt.
· You can rebuild credit sooner – consumer proposals are removed from the credit report 3 years after they are paid in full, bankruptcies stay for 6 years from the date you are discharged.
· In the case of a higher income earner or individual who has assets, a consumer proposal will involve a smaller monthly payment than bankruptcy.
· If the majority of your creditors accept the consumer proposal, your other creditors are automatically included whether they like it or not.
When investigating the differences between filing a consumer proposal vs. bankruptcy it is best to speak to an independent financial professional who can guide you through your options and represent you throughout the process. Bankruptcy trustees are shrewd negotiators and have experience filing these every day. Having your own representation can help to ensure that you get the best deal. The fact that a bankruptcy or consumer proposal may not be your only financial option is also important, which is why an independent and objective financial opinion will help you to make more informed financial decisions.
For more information about filing a consumer proposal vs. bankruptcy or if you need help with a financial problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca