What is the Difference Between a Consumer Proposal and Bankruptcy?Consumer proposal vs bankruptcy – what’s the difference between the two? A lot of Canadians are wondering – and for good reason. A lot of people are advertising consumer proposals. Sales people are pushing them. Are they as good as they sound? Is there something they’re not telling us? How does a proposal compare to good old fashioned bankruptcy? The answer is that it all depends on your financial situation. When used appropriately, both bankruptcy and a consumer proposal can be an effective form of debt relief. However, both can also have significant impacts on your life both in the short-term and long-term. We discuss below the major differences between the two, the costs of both options, their effects on your assets, the time each process takes, their impact on your credit, the long-term consequences, and how to figure out which option is best for you.
Major Differences Between Consumer Proposals & Bankruptcy
Both bankruptcy and consumer proposals are governed by the Bankruptcy and Insolvency Act, directives issued to bankruptcy trustees by the Superintendent of Bankruptcy, and provincial laws. They’re intended to provide protection from the courts for people who are insolvent and unable to repay their debts in full.
Bankruptcy was originally designed to provide honest people who had fallen upon unfortunate circumstances a fresh start when they had so much debt they didn’t have any hope of repaying it.
How bankruptcy works is that if someone files for bankruptcy, all collection activity on the debts included in the bankruptcy is stopped and creditors are typically forced to accept less for the debts owed to them than the borrower originally agreed to repay.
A consumer proposal is different from bankruptcy in that your bankruptcy trustee must offer your creditors an amount of money to settle your debts and your creditors vote on the offer. If the creditors who own the majority of your debt accept it, you repay the agreed on amount over a set length of time (usually just under 5 years).
How to Keep from Getting Ripped Off
Follow the three tips below plus start by speaking with a member of Credit Counselling Canada, an association of non-profit credit counselling agencies who do not work on commission. If a consumer proposal is truly one of your best options, one of their agencies can let you know and refer you to a reputable bankruptcy trustee for free.
Speak with a non-profit credit counsellor about your financial situation first. They will be able to review your situation with you and help you explore and understand all your options to deal with your debt.
Never pay money to anyone for consumer proposal services except a licensed bankruptcy trustee. By law, only a licensed trustee is permitted to do the work and charge for consumer proposals.
Ask how the person helping you is compensated. Many people who will seek to advise you on your debts work on commission. Make sure the “solution” they’re suggesting is in your best interest – not theirs.
What is Insolvency?
Insolvency in Canada is a legal last resort when you can no longer repay what you owe.
Debt Management Program
You’re not alone if you’re wondering if a DMP is right for you. Here’s what it is and how it works.
Are you curious about what credit counselling is or how it works? Here’s what you need to know.