Bankruptcy and Consumer Proposal
A bankruptcy and a Consumer Proposal are both legal debt relief options offered to help Canadians deal with their unmanageable debt. They both can be effective forms of debt elimination and reduction.
They are available for insolvent individuals to protect them from any legal actions including: harassing collection calls and notices, wage garnishment, and lien registration. A Consumer Proposal and a bankruptcy are both governed under the Canadian Bankruptcy and Insolvency Act and they can only be administered by a Licensed Insolvency Trustee.
A Consumer Proposal is a debt relief option which allows insolvent individuals to consolidate their debts. It is a legal process between the debtor and his/her creditors to repay a portion of what is owed. A Licensed Insolvency Trustee will negotiate with the creditors on behalf of the debtor to reduce the amount of debt owed and to stop interest charges.
The amount of debt to be repaid is based on your income, assets, and total debt load.
A bankruptcy is another debt relief option which can help individuals deal with a debt crisis. In bankruptcy the debtor assigns certain assets to a Licensed Insolvency Trustee; in most circumstances the individual will be able to retain all assets.
In the table below we have highlighted some of the main differences between a Consumer Proposal and a bankruptcy:
|Maximum debt load of $250,000 (Excluding residential mortgage).||There is no limit on the debt load.|
|Offered to individuals.||Offered to individuals and companies.|
|Protection from legal actions, collection calls, and wage garnishment is immediate.||Protection from legal actions, collection calls, and wage garnishment is immediate.|
|Once filed, creditors have 45 days to vote “For” or “Against” the Consumer Proposal. Once approved by the majority of the creditors, the Proposal will be Court approved 15 days later unless there is an objection.||No voting is required.|
|Debtor is not required to surrender his/her assets.||While certain assets are protected, debtor must surrender or repurchase some of his/her assets.|
|Once paperwork is done, income during the proceeding is not required to be reported.||Income and expenses are reported monthly. An increase in income can increase the payments and it might also extend the term of the bankruptcy.|
|Debtor must attend 2 mandatory counselling sessions.||Debtor must attend 2 mandatory counselling sessions.|
|Any tax refund belongs to the debtor.||Any tax refund is part of the estate and belongs to the creditors.|
|Consumer proposal can last up to 5 years or the debtor could provide an immediate payment. The debtor has the option to pay off the Proposal faster to rebuild their credit.||A first bankruptcy will last a minimum of 9 months. If the debtor has income above a certain threshold he/she will be bankrupt for a minimum of 21 months. The second bankruptcy will last a minimum of 24 months and up to 36 months if income is above a certain threshold.|
|If the debtor misses 3 payments the Proposal is considered annulled. Protection from creditors will be withdrawn and they will have the right to pursue collection action against the amount owed. Once the debtor’s payments are complete, —the Administrator will issue a Certificate of Discharge. At that point the debts are discharged.||Trustee will only issue the certificate of discharge once all the bankruptcy duties have been complied with and all required payments are made. At that point all debts are discharged.|
|Consumer Proposal will remain on debtor’s credit report for 3 years from the date payments are made in full.||First bankruptcy filing will remain on debtor’s credit report for 7 years from the discharge date. Second bankruptcy filing will remain on debtor’s credit report for 14 years from the discharge date.|
While a bankruptcy and a Consumer Proposal have some similarities and differences they both have one advantage over other debt relief options; they are both legally binding and can provide individuals with a fresh financial start. It is important to carefully consider your available options and choose the one that is best suited to your financial circumstances. Call us today at 1-844-482-3328 for a free consultation where you can discuss your specific financial situation with one of our insolvency experts. With the help of our experts you can make a well informed decision on how to deal with your debt.