The difference between bankruptcy and consumer proposals

Your debts can cause a lot of stress and may seem insurmountable to you. Don’t let your uncertainties prevent you from considering using a consumer proposal or declaring bankruptcy to resolve your financial difficulties. Although less common among consumers, they are two simple solutions to repay your debts and free you from your obligations towards your creditors.

These two solutions are similar, but they also have significant differences. Bankruptcy and consumer proposals have the same goal: to release you from your debts. This will free you from the anxiety and concerns related to your debt. Bankruptcy and consumer proposals are increasingly used to settle personal debts in Canada, so don’t be ashamed of using one of these solutions if you are unable to repay your debts. A Licensed Insolvency Trustee’s job is to choose a solution that suits your needs and financial situation while easing your worries.

How do I choose between bankruptcy and a consumer proposal?

The similarities and differences between bankruptcy and consumer proposals should not be ignored when the time comes to choose the right solution. It is important to consider the pros and cons of bankruptcy and a consumer proposal before making your choice. Also, remember that if you choose a consumer proposal, you can always change your mind and declare bankruptcy later. However, the reverse is not always possible; you cannot declare bankruptcy then revisit your decision and easily switch to a consumer proposal.

Similarities:

• Allow you to settle your debts over a short period of time
• Protect you from your creditors
• Reduce the total amount of debt to repay
• Stay wage garnishment and seizure of benefits by creditors
• Prevent legal remedies against you for the duration of the procedure
• Stop the accumulation of interest on your debts
• Protect you from having your bank account frozen
• Include budget consultations
• Exclude certain types of debt
• Settle tax liability
• Release you from included debts at the conclusion of the procedure

Bankruptcy:

• Some property (e.g. house, car) may be seized
• You may be able to arrange a buyback of some of your property
• RRSP deposits made in the last 12 months and your life insurance policy may be seized by the Licensed Insolvency Trustee
• You cannot contribute to your RRSP during bankruptcy
• Payments may be lower
• Your credit rating is impacted for seven years after you are discharged from bankruptcy
• Payments are subject to change if your family income increases
• Creditors cannot object to your bankruptcy
• Your GST refunds will be seized by the Licensed Insolvency Trustee during bankruptcy for the benefit of your creditors

Consumer proposal:

• Allows you to keep your property
• Does not seize your RRSP contributions or life insurance
• Provides an opportunity to surrender property to settle a portion of your debt
• Affects your credit rating for three years after the end of the proposal
• Allows for greater flexibility regarding the proposal payment timeline (up to five years)
• Your creditors may object to your proposal (it is possible to negotiate with them)
• A rejected consumer proposal does not necessarily mean that you must declare bankruptcy

Whether you choose bankruptcy or a consumer proposal, it’s important to rely on a Ginsberg Gingras Licensed Insolvency Trustee to guide you towards the best possible decision for you. Contact us quickly to help settle your debts.