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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Honestly, Beatriz was the most supportive and helpful person ever. She was very thorough, and did whatever she could to help me feel supported. If you are looking for help with anything, this place is non-judgemental and are a lot more reasonable and helpful than any other company I had inquired with.
Zenah Ghalayini
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Very patient and informative, helpful whenever I have questions. She's definitely eased my stress with my financial future. Thank you Beatriz Cabrera 🙂
Curtis Dunlap
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I was a little nervous going into my consumer proposal with David Sklar & Associates as I had a horrible experience attempting to file with a different group.Following the first correspondence, I immediately felt much more relaxed and confident in my decision.Beatriz was incredible! I feel so lucky to have had her working with me.She was friendly and kind, professional, patient, considerate, and caring. I felt no judgment in anyway. Honestly, speaking with her regarding my debt felt like I was speaking with a family member – just very easy to discuss how I ended up in my financial situation and being met with understanding, no judgment.Mark was also very kind and made sure that I understood what was discussed and was open to going over it again if needed prior to signing.David Sklar & Associates is the team you want handling and assisting you with your debt. I have only positive things to say about them and will 100% recommend them to anyone if the situation ever arises.
ally.
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Helped me with filing for bankruptcy and getting a fresh start and made the whole process seamless and easy.
Sameer Kamal
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I would like to say "Thank you very much" for David Sklar team that handled my case smoothly and without any issues! I am glad that I ve got consultation by Jerry Janiec. He explained me all process in details and told me right away what options I do have to resolve financial difficulties. I ve proceed with consumer Proposal option and entire process was very smooth. Jerry took care of my case and gave me personal recommendations for future! Thank you very much Jerry and Hernee for your help and really take care of your clients!
Alexander Arepyev
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Very knowledgeable, helpful and fast service
Anthony Mcfeat
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I am so delighted to have found this company. They are the best. Everyone in the office is very nice never to busy to assist you. Thank you David Sklar and Shirley and associates for being you. 😊🌺😊
Deborah
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Trina was amazing and quick. No judgement was made and they all made me feel I made the right decision. Would highly recommend them
Crystal Minaker
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Trina was very easy to work with. Any questions I had were answered promptly. What seemed like a complicated process was explained in a clear manner that wasn't at all intimidating. It made for a more comfortable experience during a turbulent time.
Eldon Aubie
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Jackie is very professional...I would recommend David Sklar to anybody especially knowing how understanding they are.
Kimberley Lyder-Niles
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