The Differences Between Bankruptcy vs Consumer Proposal

Bankruptcy vs Consumer Proposal

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When considering a Bankruptcy vs Consumer Proposal, keep in mind that everyone’s situation is different and only a discussion with a Licensed Insolvency Trustee (who will review your current financial situation in detail) will be able to help answer this question for your specific circumstances. Bankruptcy is the last resort and most severe debt removal option and should not be entered into before all other options have been explored.

Consumer Proposals and Personal Bankruptcies fall under the Bankruptcy and Insolvency Act (the “BIA”). Each can only be filed by a Licensed Insolvency Trustee (such as David Sklar & Associates Inc.). The goals of both are to:

  • Offer relief to ‘honest but unfortunate debtors’ and enable them to get on with their lives;
  • Stop collection efforts and legal actions (including wage garnishment);
  • Stop interest;
  • Release the debtor from their debt load; and
  • Offer training to avoid future debt problems.
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Let’s explore the differences between Bankruptcy vs Consumer Proposal

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.

Who Qualifies For A Consumer Proposal?

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 Of A Consumer Proposal?

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.

A Consumer Proposal Stops All Debt 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.

One Monthly Payment That Does Not Change

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.

You Get To Keep Your Assets

One of the biggest advantages that come 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 downside.

What Are The Cons Of A Consumer Proposal?

There Are Still Payments That you Will Need To Make

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.

A Consumer Proposal Will Impact Your Credit

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.

A consumer proposal can remain on a credit report a maximum of 6 years from the date you file A consumer proposal that is completed in five years, will be removed from your credit report one year later (six years from the date you filed).

A consumer proposal that is completed in two years, will remain on your credit report an additional 3 years from the date you completed payment (for a total of five years).

A consumer proposal paid immediately as a lump sum, will be removed three years after the completion of the proposal.

Consumer Proposal Can Be Rejected By Your Creditors

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 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.

Who Qualifies For Personal Bankruptcy?

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 Of Personal Bankruptcy?

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.

Stigma

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

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.

Photo by Alex Green

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 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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Great experience i was in financial trouble and someone of my friends recommended this company. Cori is a wonderful and welcoming person she did a very good job and came up with a smooth and flexible monthly payment after the reduction. i highly recommend this company. Thank you David sklar and special thanks to Cori.❤️🙏🏻
Jasmine Joseph
22:08 13 Jan 23
Met up with Mr. Jason Sklar to discuss more in person, very thorough and clear. He is very kind and thoughtful, I will be referring anyone with the same situation to David Sklar & Associates.
Ariel Domingo
02:33 29 Dec 22
I was a reck talking yo Jason Sklar was easy comfortable he explained everything and put my mind at ease I would recommend the team od sklar to everyone. I have already talked to my ci workers about them
kevin mcweeney
01:13 22 Dec 22
The team at David Sklar & Associates is fantastic.I worked with Jerry whom not only made - what seemed like intimidating process to initiate at first - comfortable.He made everything transparent and took the time to explain the process every step of the way.He was kind, attentive, and professional. Everything was made straightforward and stress free and we found a solution together that worked.Thanks to Jerry and the team.
Jordie Angiolillo
18:22 21 Dec 22
From day one till the end which is today😁 DavidSklar gave me a 5star service and treatment. And I will 100% recommend him and his Associates. This is the best Christmas present ever! Thank you David! More business to come! Merry Christmas and a Happy New Year!!!
barbee diaz
16:37 16 Dec 22
I FOUND DAVID SKLAR & ASSOCIATES BY GOOGLING "BANKRUPTCY" (EARLY NOV. 2021). ON NOV.4, 2021 I HAD A MEETING WITH CORI NARON AT HER OFFICE AT ST CLAIR ANDBATHURST. HER POSITIVE APPROACH TURNED ASTRESSFUL SITUATION INTO A STEP BY STEP UNDERSTANDABLE PROCESSON SEPT. 23, 2022 I OBTAINED MY AUTOMATICDISCHARGE FROM BANKRUPTCY AND MY CERTIFICATE OFDISCHARGE.THANK YOU CORIBRUCE BURGESS
bruce burg
21:35 02 Dec 22
Jerry was wonderful and provided superb service. He is very knowledgeable, trustworthy, and made an intimidating and shame filled time in my life stress free. I hesitated for a long time to take the next step, but Jerry answered all questions, was patient and made the process effortless. I am eternally grateful, and highly recommend Jerry’s services.
M J
18:41 01 Dec 22
Jerry was professional and was easy to deal with
Debbie Asquith
00:09 29 Nov 22
I was quite nervous and a little embarrassed that I needed financial advice. I met with Jerry Janiec and he was very helpful. He made me feel comfortable and explained everything in easy to understand terms so that I understood what my options were. I would recommend David Sklar & Associates for anyone in my position.
Melissa Blackburn
19:53 17 Nov 22
I was fortunate enough to be referred to David Sklar & Associates Inc. by a family member. Now in the10th month of a Consumer Proposal process, I am very impressed with the organization, professionalism and impeccable customer representation that I have experienced. To this effect, I amparticularly thankful to Jerry Janiec and Rhoda Lewis for their excellent work.
Suzanna Vaclavik
12:21 16 Nov 22
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