Bankruptcy vs Consumer Proposals

As outlined in the Consumer Proposals section of our site, for many people a Consumer Proposal in BC is a suitable alternative to personal bankruptcy. To determine whether personal bankruptcy might be the right option for you, consider the following factors:

Monthly income:

  • Depending on your household size, we will calculate the appropriate low-income cut-off level for your situation to work out what monthly payment you would be able to afford.
  • In order for a proposal to be successful, it should not impose undue hardship on the debtor and his or her family. If your monthly income is below the low-income cutoff levels you should consider whether personal bankruptcy might provide a quicker and less expensive means of achieving a fresh financial start.

Age:

  • Proposals are normally structured as payments over a period of time (typically 36 months). If you are nearing the end of your working life, or are already retired with a fixed income that does not allow for a viable proposal to be made to your creditors, personal bankruptcy could be the best option for you.

Uncertainty of income:

  • For a proposal to succeed, a person should have relative certainty on his or her income or have a third party (i.e. friend or family member) who can assist the debtor in completing the proposal if his or her income level changes.
  • For someone who is anticipating a reduction in income or a period of unemployment, personal bankruptcy could be the correct option as the monthly payments will fluctuate directly with the person’s income.

Size of debts:

  • Personal Bankruptcy may be the best option for someone with an extremely large debt load and relatively low monthly earnings. A proposal can be viable if it provides a ‘reasonable’ return to creditors (often 15% of debt repayment or higher) over a period of time not exceeding 60 months. If a person’s debt load is too high, and income levels are too low to make a viable proposal, personal bankruptcy can be the right option.

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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