Reasons Why a Consumer Proposal May Be a Better Choice than Bankruptcy

Consumer Proposals must provide a better result to creditors than a bankruptcy . Otherwise, there is no reason for creditors to vote in favour of the Consumer Proposal.

Note, however, that a “better” result can stem from a quicker distribution, lower costs of administration and a certain outcome of issues that may otherwise be contentious. Proposals are particularly useful in the following situations:

  • Where the person finds personal bankruptcy unacceptable;
  • Where the person wishes to continue in business and will be prevented from doing so if obliged to disclose that he or she is bankrupt when dealing with third parties;
  • Where professional accreditation may be lost or put at risk by a bankruptcy;
  • Where a bankruptcy will result in a secured creditor acting on its security;
  • Where the person wishes to retain some key assets (e.g. a home, heirloom or impending inheritance);
  • Where the person has previously been bankrupt;
  • Where the person desires a “certain” result or a quick resolution and is prepared to pay a premium to achieve that result, or;
  • Where a personal bankruptcy discharge is likely to be contentious or a substantial condition is likely to be imposed.

Consumer Proposals, as an alternative to bankruptcy, have been increasing in popularity each year. In 2015, for example, nearly 20% more Consumer Proposals were filed in BC than in 2014.  In a year where the number of bankruptcies actually declined, Consumer Proposals continued to grow in popularity.

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.


DOWNLOAD THE INFOGRAPHIC

Are creditors harassing you? Are the endless phone calls and collection letters causing you stress? Are you living on your credit cards? Are you unable to maintain your minimum payments? Are you being pursued for government debt? If you answered "yes" to any of these questions, you are not alone. In the twelve-month period ending July 2016, more than 66,000 Canadians were in the same financial position and found relief by seeing a Licensed Insolvency Trustee and filing personal bankruptcy. Another 57,000 Canadians settled their debt management problems by filing a consumer proposal.

If you are not a resident of British Columbia, more information is available about bankruptcy in Canada.

No matter what the cause of your financial difficulties, the Bankruptcy and Insolvency Act does not restrict a person from filing personal bankruptcy or making a consumer proposal. For example, you could be in financial trouble due to the loss of employment, a divorce, a leaky condo, medical problems, gambling, substance abuse, or poor money management. Regardless of the reason, filing personal bankruptcy or making a consumer proposal to your creditors is based upon your unique individual circumstances and is ultimately your personal decision. In BC, both of these remedies can only be filed by utilizing the services of Licensed Insolvency Trustees. At Sands & Associates, our Licensed Insolvency Trustees understand that most people file into bankruptcy or make a consumer proposal to creditors because of unfortunate circumstances, and we will guide you through this difficult time. 

Personal bankruptcy or a consumer proposal to creditors can provide shelter from the financial storm. Each will stop virtually all legal proceedings, garnishees, and phone calls from your creditors. These legal remedies provide a fresh start by pardoning your debts including credit card debts, lines of credit, legal bills, utility bills, medical bills, automobile insurance, judgments, government debts, etc. A Licensed Insolvency Trustee can help you understand the relative merits of each of these debt management options within BC. 

At Sands & Associates, we make filing personal bankruptcy or making a consumer proposal to creditors simple. We will arrange for a free initial consultation with one of our knowledgeable staff to discuss your financial status, and help you to determine whether bankruptcy or a proposal to creditors is the right choice for you.

Should you choose to file personal bankruptcy or make a consumer proposal to your creditors, we will process the necessary paperwork, arrange for possible meetings with creditors, provide two credit counselling sessions at our convenient offices located in Vancouver, Burnaby, New Westminster, Richmond, Surrey, Langley, Coquitlam, Maple Ridge, White Rock, Abbotsford, Chilliwack, Victoria, Nanaimo, Kamloops and Kelowna. 

After you have filed personal bankruptcy or a consumer proposal, you are required to perform your duties as outlined in the Bankruptcy and Insolvency Act. Some of the duties in a personal bankruptcy include keeping the Licensed Insolvency Trustee informed of your current address, declaring your monthly income and expenses for a minimum of nine months, attending two credit counselling sessions, and paying the Licensed Insolvency Trustee an amount that is dependent upon your income and the assets that you own. 

If this is your first personal bankruptcy, the earliest that you will be eligible for your discharge is nine months after your date of filing. A discharge from bankruptcy means that your debts will be eliminated and your creditors can no longer pursue you for the outstanding amount owed. It provides peace of mind and a chance for a fresh financial start. 

If you choose to make a consumer proposal to your creditors and if the creditors and the court accept it, the contract is binding between you and the creditors. A certificate of completion, which discharges your indebtedness, will be given as long as you meet the terms of the contract and remit the appropriate funds or assets to the Licensed Insolvency Trustee.