What’s Better – Consumer Proposal or Personal Bankruptcy?

Do you owe money on credit cards? How about a line of credit, income taxes or payday loans? If you have more debt than you can handle, no doubt you are looking for answers about how to deal with your debts. For people who are simply unable to pay back all of their debts, the decision often comes down to filing a consumer proposal or personal bankruptcy.

I am often asked which is better. The best answer for you will depend on a variety of factors particular to your circumstances. There is no one right answer for everyone.

There are many similarities between a consumer proposal and personal bankruptcy. Both are legal proceedings under the Bankruptcy and Insolvency Act of Canada that give you legal protection from the people you owe money to. That means your creditors can’t garnishee your wages. Furthermore, both provide a clean slate from your debts once they are completed. I like to think of it as two different roads to the same destination. It’s how you get there that is different.

In general, personal bankruptcy would be more appropriate for somebody who has modest income and no significant assets. If you file for bankruptcy and have assets that are not protected, your trustee is required to sell those assets. If your income is too high, you are required to pay surplus income.

Maybe you’ve been bankrupt before. A second or third bankruptcy will be longer and more costly and in those circumstances a consumer proposal is often a better choice.

In a consumer proposal you offer a payment plan to your creditors to repay a portion of the debts. If they agree to your offer, you make a single monthly payment to your trustee to deal with your debts. Most people find that this payment is less than the monthly minimum payments they’ve been struggling with for months or years. Because a consumer proposal payments can be extended up to 5 years, your monthly payment in a proposal can also be less than it would be in a bankruptcy. However you should know that because you are paying over a longer period of time your creditors will want to receive more in total than they would receive in a bankruptcy.

If you are at the point where you think you do not have any other options to deal with your debt, think of a consumer proposal or bankruptcy as an opportunity.

You heard me right, I said opportunity.  A consumer proposal or personal bankruptcy takes care of your debts.  Which you choose depends on your circumstances however both can be the fresh start you need.

That is the ultra quick summary of consumer proposal vs. personal bankruptcy. You can read here for a more detailed summary of similarities and differences between a bankruptcy and proposal  on our main site.

Contact us today to book a free consultation and we will help you explore which option might be best for you.