Consumer Proposal Vs. Bankruptcy
Canadians who are struggling with an overwhelming amount of debt have several options for regaining control of their finances, including bankruptcy and the consumer proposal. These two options can provide debt relief in different ways; there are advantages and disadvantages that should be considered when choosing between the two.
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Function
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The purpose of a consumer proposal is to allow debtors to enter into an agreement with creditors to repay a portion of their debts over time and still retain control of their assets. A bankruptcy filing allows debtors who can't afford to make regular debt payments to eliminate their liability by surrendering any assets they may possess for the benefit of their creditors.
Time Frame
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A bankruptcy filing typically takes a minimum of nine months to complete, depending on how long it takes debtors to complete the required steps. A consumer proposal can last anywhere from a few months to a maximum of five years, depending on the total amount of debt, the debtor's income and what percentage of the debt they intend to repay.
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Features
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Consumers who owe less than $75,000 in debt, excluding their first mortgage, may file a consumer proposal. The types of debt that may be included in a consumer proposal filing include credit cards, bank loans, payday loans or tax debt. Bankruptcy filings are available to anyone owing at least $1,000 who lacks sufficient income to repay the debts. A bankruptcy may be used to discharge consumer debt, such as credit cards or loans, tax debt or student loans in certain circumstances. Both consumer proposals and bankruptcy filings provide debtors with automatic stay protection against collection actions from their creditors and both require debtors to complete mandatory financial counseling.
Benefits
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The primary benefit of a consumer proposal is that debtors are allowed to keep their assets while repaying their debt. A consumer proposal can also allow debtors to save money by repaying less than what they owe, and interest stops accruing as soon as the proposal is filed. A bankruptcy filing can allow debtors who don't have sufficient income to repay their debts to be released from their obligation to the debts and avoid further collection actions against them.
Considerations
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With a consumer proposal, creditors must agree to the terms of the repayment plan and all payments must be completed as agreed in order for the filing to be complete. A consumer proposal will remain on the debtor's credit report for a period of three years from the date it's completed. A bankruptcy filing can remain on a credit report for up to six years with Equifax and 14 years with TransUnion from the date of the discharge, according to Burlingham Associates.
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