Bankruptcy vs Consumer Proposal

Many people who initially contact a Licensed Insolvency Trustee (formerly known as a Trustee in Bankruptcy) are surprised to learn that there is another legislated debt solution in Canada besides personal bankruptcy, a debt settlement option called a Consumer Proposal.

Consumer Proposals are a debt consolidation tool that have been increasing in popularity for a number of years – in fact, in British Columbia, more people are now opting to settle debt using a Consumer Proposal over filing a personal bankruptcy.

Consumer Proposals are typically structured as payments over a period of time and can drastically reduce the overall amount of debt you must pay – reductions of up to 80% are possible. The flexibility of a Consumer Proposal means that there is a range of debt settlement terms that creditors may accept, in order for you to avoid personal bankruptcy.

Personal bankruptcy may be the best option for debt management for a person with an extremely large debt load and a relatively low income, however, it is always best to meet and discuss your specific situation and needs in person before making a final decision.

Meet confidentially with a Sands & Associates representative to explore your debt options, including Consumer Proposals and personal bankruptcy. Consultations are free and there is no obligation.

While both these debt management options are only available by working with a Licensed Insolvency Trustee, there are some key differences between these two processes:

Consumer Proposal
VS. Personal Bankruptcy

Here are some of the key differences between Consumer Proposals and Personal Bankruptcy:
Consumer Proposal
Personal Bankruptcy
How Much Debt Repaid?

Total amount of debt generally reduced;
reductions of 70-80% are common.

Interest is automatically frozen by law on all debts.

Income levels and family size taken into account.

No amounts are repaid to the creditors in nearly 80% of bankruptcies; there is no set repayment of debts.

Interest is automatically frozen by law on all debts.

Payments are based on income and assets that may not be exempt; monthly payments are often for administration costs only.

Administration Costs

All administration costs are included in the payment amount offered to creditors – no additional fees are charged.

Federal government-regulated tariff is used to set fees.

Minimum monthly payments are usually $200 per month for 9 months.

Federal government-regulated tariff is used to set fees.

Length of Time

Must be completed within 60 months; terms of 24-48 months are typical.

May be paid in full early at no penalty.

Will last either 9 or 21 months if it is a first-time bankruptcy, depending on income.

Impact on Credit Rating

An R7 credit rating will be noted for 2 to 3 years following completion.

An R9 credit rating will be noted for 6 years following discharge, although with proper credit rebuilding steps it is still possible to obtain credit during this time.

Creditor Agreement and Collections

All creditors are bound by the terms and share in payments if 50% of voting creditors accept the Consumer Proposal.

The ONLY method in Canada for reducing debts with Canada Revenue Agency.

Only a Licensed Insolvency Trustee can cease a wage garnishment, asset seizure and other collection action.

Contact from creditors must cease upon filing.

Creditors cannot prevent you filing for personal bankruptcy.

Debts owing to Canada Revenue Agency can be extinguished.

Only a Licensed Insolvency Trustee can cease a wage garnishment, asset seizure and other collection action.

Contact from creditors must cease upon filing.

Advisor's Qualifications

Only a Licensed Insolvency Trustee can file a Consumer Proposal on your behalf.

Licensed Insolvency Trustees are licensed by the federal government.

Must comply with Code of Edits and rules of professional conduct.

Overseen by the Office of the Superintendent of Bankruptcy.

Licensed Insolvency Trustees are licensed by the federal government.

Must comply with Code of Edits and rules of professional conduct.


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