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| Generally speaking, a consumer proposal may be better if you can afford monthly payments and want to avoid bankruptcy while keeping assets; while bankruptcy may be better if no long-term payment is affordable and you have limited assets. Both are legal debt solutions administered by a Licensed Insolvency Trustee and both can stop most unsecured creditors’ collection actions once filed. |
The right choice depends on your situation
Consumer proposal and bankruptcy are both legal solutions for serious debt. Neither is automatically better for everyone. The best choice depends on your income, assets, total debt, family size, creditor pressure and your ability to make monthly payments.
A Licensed Insolvency Trustee can compare both legal solutions against your other options so you can make an informed decision. Review the full range of debt relief options and see the official Office of the Superintendent of Bankruptcy comparison of debt solutions.
What a consumer proposal does
A consumer proposal is a formal settlement offer to your unsecured creditors. You may offer to repay part of the debt, extend the time to pay, or both. The proposal is filed by a Licensed Insolvency Trustee. If the creditors accept the proposal and you complete the proposal, then you are released from the included debts with a few exceptions. Interest and collections also stop on included unsecured debts and are forgiven along with the remaining principal once the proposal is completed. Official details are available from the Office of the Superintendent of Bankruptcy on consumer proposals.
What bankruptcy does
Bankruptcy is a legal process to discharge debts for people who cannot afford to make any long-term payments toward their debts. It can provide relief from many debts and stops most unsecured collection action; but it involves several duties, asset review, possible income-based payments, and credit consequences. Bankruptcy may be appropriate when there is no realistic way to afford a proposal and all other possible options have been exhausted. See the Office of the Superintendent of Bankruptcy page on bankruptcy discharge and its consequences.
Proposal may be a better fit when
A consumer proposal may be a better option when you:
- have a stable income;
- want to avoid bankruptcy;
- need one affordable payment;
- have assets you want to protect; or
- want to repay your debt but cannot afford to repay the full amount with interest.
It may also be a fit if your creditors would likely receive more through a proposal than they would in bankruptcy.
Bankruptcy may be a better fit when
Bankruptcy may be a better fit when:
- income is too low to afford proposal payments;
- debts are overwhelming;
- you have limited assets;
- you need a legal fresh start; and
- you have exhausted all other possible remedies.
For some people, bankruptcy may be the quickest and most affordable legal option. For others, it may be less attractive because of assets or income obligations.
Credit impact comparison
Both options affect the credit rating. A consumer proposal generally remains on your credit report as R7 for six years after the proposal is filed or three years after the final payment, whichever comes sooner. A first bankruptcy generally remains on the credit report as R9 for six to seven years after discharge. See the Financial Consumer Agency of Canada page on how long information stays on your credit report.
Credit impact should be considered, but it should not be the only factor. Ongoing missed payments and collections can also damage credit. The goal should be to take control of the debt first and rebuild credit later.
Asset comparison
A consumer proposal may allow you to keep assets while making payments to creditors. Bankruptcy requires an asset review, and non-exempt equity may need to be dealt with.
This is especially important for homeowners or people with valuable vehicles, investments, or other assets.
The main takeaway
Choose a consumer proposal if the payment is affordable and it protects your goals. Choose bankruptcy if repayment is not realistic and a fresh start is needed. Before deciding, speak with a Licensed Insolvency Trustee and compare both options side by side along with your other options, including debt consolidation and credit counselling.
Frequently asked questions
Is a consumer proposal better than bankruptcy?
It can be, especially if you can afford payments and want to avoid bankruptcy, but it depends on your situation.
Do both options stop collection calls?
Yes, both can stop most unsecured creditors’ collection actions once filed.
Can I switch from proposal to bankruptcy?
Yes, if your circumstances change and the proposal payments become unaffordable, or if a proposal fails, bankruptcy may become an option after a consumer proposal has been filed. Speak with your Licensed Insolvency Trustee before missing payments.
Can I switch from bankruptcy to proposal?
Yes, if your circumstances change or proposal payments become affordable, a consumer proposal may become an option after a bankruptcy has been filed—so long as the proposal is accepted by the creditors and deemed approved before the bankruptcy discharge date. In that case, the consumer proposal annuls the bankruptcy. Speak with your Licensed Insolvency Trustee before missing payments.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debt, assets, income and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
