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Choosing Wisely Between A Consumer Proposal or Bankruptcy
Two common debt relief methods are a consumer proposal and bankruptcy. Both of these options are legal processes designed to help those who are unable to pay their debts as they become due. Both processes must be administered by a licensed trustee in bankruptcy. However, there are key differences that you will need to be aware of if you are considering consumer proposal or bankruptcy.
In order to understand these differences, it’s good to start with an understanding of what these two different options are.
What is a Consumer Proposal?
In a consumer proposal, you make a formal offer to all of your unsecured creditors to repay a portion of what you owe. In this offer, you proposal to pay your debts in a manner than you can afford. In the majority of consumer proposals, a person will offer to pay back a portion of his or her debts over a specific period of time. Consumer proposals are usually paid in monthly payments. These payments are made to your trustee, who acts as your proposal administrator. There are no additional fees. All administration costs are taken from these payments.
When you file a consumer proposal, you must include all of your unsecured creditors. Unsecured debt includes credit card debt, unsecured lines of credit, department store cards, personal loans, bank overdrafts, etc. It does not include secured debt such as mortgages or automobile loans. A consumer proposal does also not include debts such as spousal support or child support payments.
Once your proposal is submitted your unsecured creditors have 45 days to vote on whether or not they wish to accept the proposal. If the majority of your creditors vote to accept, then all unsecured creditors are bound by the terms of the proposal.
Consumer proposals can be paid off in between one and five years and there is no penalty for paying your proposal early, if this is possible for you. A consumer proposal remains noted on your credit report for three years after it has been completed.
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What is Bankruptcy?
Bankruptcy is a legal process that is designed to give those “honest yet unfortunate debtors” an opportunity to eliminate most (if not all) of their debts and start fresh. Much like a consumer proposal, bankruptcy can only include unsecured debts. If you are having difficulty paying debts such as mortgage debt or vehicle loan debt, you will need to speak with these lenders individually. Bankruptcy does also not include debts such as child support and alimony.
Contrary to what many people believe, filing for bankruptcy does not mean that you will lose everything you own. In fact, many people are able to keep most (if not all) of their assets. The bankruptcy process is not designed to punish people and leave them with nothing. It is designed to put you in a position where rebuilding your financial life is possible and to pay your creditors legitimately what you can afford to pay.
Each province has a list of items that are deemed necessary to live a basic lifestyle and the dollar value of these items. These assets are considered exempt, meaning that you will not lose them if you file for bankruptcy.
The length of your bankruptcy depends on several factors, including whether or not you have filed for bankruptcy before and whether or not you need to make surplus income payments. Surplus income payments are payments that need to be made if you have an income greater than the level that is set by the federal government for your family size. Your trustee will let you know if this is required.
Bankruptcy remains noted on your credit report for six years after you have been discharged.
The Choice Between Consumer Proposal and Bankruptcy
When it comes to choosing between consumer proposal or bankruptcy, the choice really depends on your unique financial situation. Every situation is different and different options work better for different people.
Sitting down with a trustee in bankruptcy is an excellent way to figure out which financial option is right for you. The initial consultation with the trustee is offered free of charge. In this consultation, the trustee will review your financial situation and let you know which options are available to you. You can then use this information to make an informed choice that will work for you.