Consumer Proposal or Bankruptcy? What Is the Best Choice for You

Consumer Proposal or Bankruptcy What Is the Best Choice for You

If you are struggling financially, you are not alone. Many Canadians are in the same boat. COVID-19 has drastically altered the economic landscape in a matter of months, leaving millions worried about the state of their finances. The sudden economic instability means that more people will file for insolvency in 2020.

Read ahead to find out why the insolvency rates are so high and to learn what debt relief option could work best for you. Looking through the qualifications, benefits and consequences will help you make the right choice.

Insolvencies on the Horizon

COVID-19 has brought about more financial problems than ever. As early as February 2020, an Ipsos poll found that 37% of Canadians were worried that the pandemic would affect their personal finances. At the time, that was considered an unprecedented statistic. Now, as COVID-19 has sent shockwaves throughout the country, that statistic appears to be an understatement.

Rising Unemployment Rates

The entire country has seen a surge in unemployment. Statistics Canada revealed that Canada lost 2 million jobs in April alone because of the pandemic and subsequent lockdowns. Some provinces took bigger economic hits than others. The Labour Force Survey revealed that the province of Ontario lost 689,200 jobs in April. This pushed the unemployment rate from 7.6% to a staggering 11.3% in a single month.

Emergency Support Falls Behind

The silver lining at the moment is that the government has offered emergency financial aid for workers who have lost their jobs because of COVID-19. The Canada Emergency Response Benefit (CERB) program offers $500 of temporary income support per week for up to 16 weeks.

The financial aid is designed to help Canadians cover essentials like housing, groceries and utilities through the crisis. While the monthly aid is useful, it definitely cannot cover the needs of every Canadian — especially in locations where the cost of living is high. As of January 2020, the average cost of rent for a one-bedroom apartment in Toronto was $2300 per month. That’s $300 more than the entire month of CERB.

The Association for Community Organizations for Reform Now (ACORN) polled renters across Canada. Approximately 35% of renters said they did not have enough money to pay for May’s rent. At the time, 42% of these renters were not eligible to apply for CERB. The federal government has since made adjustments to make the program more accessible.

Debt Backlog

Government aid may be able to help out-of-work Canadians cover basics like groceries, but it might not be enough to cover another monthly burden: debt. Unemployment inevitably makes paying off outstanding debts difficult.

Statistics show that Canadians had lots of debt trouble before COVID-19 even arrived. According to the TransUnion Co. forecast in December 2019, the average Canadian’s credit card debt was $4,240 and the average non-mortgage debt was approximately $30,000.

If you are worried about how you’re going to pay the bills right now, you should read our blogpost “Everything You Need to Know about Financial Help during COVID-19” to see how you can reduce your debt load through cancellations, deferrals, extensions and more. Or you can talk to experts at financial advice in a consultation over the phone or over video chat.

What Can You Do about Insolvency?

When so many people are struggling to make ends meet, they’re going to file for insolvency. The insolvency rates in 2019 were already at a record high, with over 102,000 consumer insolvencies recorded by November. In February 2020, The Office of the Superintendent of Bankruptcy found that insolvencies in the Greater Toronto Area rose by 18%. Now, with a pandemic and mass levels of unemployment, those numbers are going to climb.

If you think you will be insolvent, you can talk to a licensed insolvency trustee to see how you can get control of your finances and avoid more intensive debt relief strategies. With the right information, you could get a better handle on your debt and move forward. Take a look at these testimonials to see how we have helped many Canadians dealing with the same financial problems.

If you are insolvent, you should talk to a licensed insolvency trustee to see what debt repayment strategy you should take. While there are some informal options that might help your situation, there are two formal options available under the Bankruptcy and Insolvency Act: a consumer proposal or personal bankruptcy. Read ahead to see what these options do and what pros/cons come with them. Knowing the details will help you make the right pick.

Consumer Proposals:

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement made between a debtor and their creditors, attempting to lower your combined debt total. With the help of a licensed insolvency trustee, you write a proposal asking that your creditors accept a repayment plan that is much more manageable for you. The trustee sends the proposal to the creditors. Click here to learn more about consumer proposal services and what a licensed insolvency trustee will do to help you through the process.

The creditors have 45 days to look over the proposal before giving their answer. If the majority of them agree to the terms, then your proposal is official and the repayment plan goes into effect. If the majority reject them, you and the trustee can adjust the terms in hopes of getting creditors to reconsider. If the creditors still don’t agree to the adjusted terms, then your next best option is to file for personal bankruptcy.

What Are the Qualifications?

The main qualification for a consumer proposal is that you are an individual that owes less than $250,000 (excluding the mortgage on your primary residence), and you’re unable to pay back that debt in a reasonable time. If you have more than that amount, you can ask your licensed insolvency trustee about filing for a Division 1 Proposal. It is similar to a consumer proposal, but it’s directed toward individuals or businesses that owe more than $250,000 (excluding the mortgage on a primary residence).

What Are the Benefits?

There are several benefits that come with a consumer proposal, which often make it the first choice for people struggling with insolvency. Here is a brief list of advantages that could make you turn to a consumer proposal.

No Collections

The debtor isn’t the only one who has to abide by the rules of the consumer proposal. The creditors have signed the dotted line to legally agree to these rules and restrictions:

  • They cannot charge interest.
  • They cannot charge late fees and penalties.
  • They cannot make collection calls.
  • They cannot continue garnishing wages.
  • They cannot take legal action against you.
  • They cannot contact you about your debt. They must contact the licensed insolvency trustee.

Strict Repayment Terms

Once the agreement is in effect, your scheduled repayments stay the same. It does not matter if you get an increase in income. Your payment amount will not suddenly rise or change. There will be no nasty surprises. It will be consistent from day one.

Keep Your Assets

One of the biggest advantages that comes with a consumer proposal is that you will get to keep your assets. So, if you’re worried about losing a car, a property or an investment, you can rest assured that they will go untouched during the repayment process. However, this does come with a down-side.

What Are the Cons?

Paying for Assets

You will still have to take care of your assets while going through the consumer proposal process. Responsibilities like mortgage payments, property tax payments, auto loan payments, car insurance, etc. will continue on as normal. You will have to manage your money carefully so that one obligation doesn’t outweigh the other.

Credit Report Notice

A consumer proposal will impact your credit score. It will not have as strong of an impact as personal bankruptcy, but you will notice that the number is lower. Your credit report will take off the notice that you have filed a consumer proposal three years after it’s completed.

Consumer Proposal Failure

One of the biggest disadvantages that comes with filing a consumer proposal is that there is still a chance that you violate the terms and end the agreement before you complete it. When you fall behind three months of payments, the proposal will be annulled. You will return to your original debt load. Creditors can charge you accruing interest, late fees and penalties. Collection activities can recommence.

If you think you’re going to miss a payment, you should talk to your licensed insolvency trustee immediately. If necessary and appropriate, they can file an amendment to your proposal so that you prevent a future annulment.

If you fall behind three payments, your next best choice for debt relief will be to file for personal bankruptcy.

Personal Bankruptcy

What Is Personal Bankruptcy?

Filing for personal bankruptcy in the province of Ontario is a complicated legal action. It should be considered a last resort for debt relief. When an individual files for bankruptcy, they declare that they cannot repay those debts. To repay creditors, assets are settled and disbursed. Once meeting all of your legal requirements, you will receive a Discharge — this legally declares you released from the debts covered by the process.

Click here to learn more details about personal bankruptcy services and how a licensed insolvency trustee will help you through it.

What Are the Qualifications?

Any individual that owes more than the total equity of their assets is eligible to file for bankruptcy. If you owe more than $1000 that you can’t repay, then it’s a potential solution for your financial problems.

Individuals that can’t get consumer proposals accepted or who fail to complete their proposals should file for bankruptcy.

What Are the Benefits?

Personal bankruptcy does not have a long list of benefits that are different from a consumer proposal. The main advantage of the process is that it allows people with insolvency to get legitimate debt relief and get a chance at a fresh financial start. The blank slate comes with consequences, but many debtors willingly accept these consequences so that they can move on from the stress of outstanding debts and collection calls.

People who might consider personal bankruptcy advantageous are those who won’t be harshly affected by the settling of assets. Debtors that don’t have property or large assets that will be liquidated and distributed among creditors may not worry as much about the impact. It all depends on your situation.

What Are the Cons?

Settling Assets

One of the things that people worry about with personal bankruptcy is losing their assets. In order to repay creditors, a licensed insolvency trustee takes the debtor’s assets, settles them and distributes the results among creditors. A silver lining is that trustees will not settle every asset you own. The province of Ontario has multiple asset exemptions for items like household furnishings, clothing and essential tools.

Employment Opportunities

Your credit history can affect your employment opportunities — this is especially true if you intend to work in Finance. Personal bankruptcy will stay on your credit report for six to seven years, depending on the credit bureau. It strongly impacts your credit score. If an employer runs a credit check and sees this information, they may disqualify you as a candidate for the job.


The stigma of bankruptcy continues to thrive. This can make people avoid filing. It’s possible that with rising levels of financial insecurity, the public will be more sympathetic and understanding when it comes to bankruptcy.

David Sklar & Associates

Residents of the Greater Toronto Area have had their lives turned upside-down by the pandemic of COVID-19. Here at David Sklar & Associates, we understand that many residents have been thrown into financial instability because of this health crisis and are concerned about what to do next. If you need financial help, we are still here for you. We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.

Before you make a decision and commit to one form of debt relief, do your research. You want to know all of the benefits and consequences that come with it, whether they’re big or small. And if you’re still unsure about your choice, you can always rely on the professional opinion of an experienced licensed insolvency trustee.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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Very professional and fast service! Also, personable!.. they don't treat you like a number, but like a person.From the time I first contacted them, until I was set up there has been not more than 7 days.I dealt with Jackie, she was great!
Jelena Petrovic
18:06 20 Jun 21
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19:59 18 Jun 21
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Mark Simmonds
21:50 16 Jun 21
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Richelle Barriault
17:57 16 Jun 21
Reached out to Jackie, who was very cordial and professional. Highly recommended.
The Lit Lion
16:54 16 Jun 21
I must admit that I am so glad I called! I spoke to Rhoda Lewis who right away made me feel at ease. She's so caring and supportive I highly recommend her. Thanks to her my life is now on track! Thank you David Skylar & Associates Inc!
Grace Muller
17:55 25 May 21
Very professional and courteous. Jackie was very helpful and understanding. She was happy to answer any questions I had and we were able to process everything quickly with no hassle.
Nicholas Burnett
17:07 19 May 21
I would say my experience with David Sklar was spectacular, they made it really easy for my through the whole process and now 9 months later my bankruptcy is discharged.i would recommend David Sklar to anyone.
23:00 06 May 21
I had a nagging defaulted student loan that was holding me back. There were a few smaller issues that were compounding. The lockdowns really forced me to look into building back my credit and starting fresh.Ashley at David Sklar & Associates at the Keele and Finch location was a blessing. She was thorough in her explanations and answered any concerns I had. She gave me the options and let me decide what was best. After conferring with her, I decided bankruptcy was the best option. She made the process of filing for bankruptcy easy.There's nothing to be afraid of. Stigma attached to bankruptcy but you can reset if you work hard to make it happen.I highly recommend speaking with Ashley if you have any concerns about debt solutions.
14:39 04 May 21
I highly recommend David Sklar & Associates Inc. They helped me with my finances along with the help of Ashley Carter whom assisted me thoroughly throughout the process of my Consumer Proposal. She is very friendly, professional and updated me occasionally through emails. With her tremendous help, I am very thankful to have accompanied someone like her!
21:05 28 Apr 21