If you're struggling with debt, a consumer proposal or personal bankruptcy may be viable debt relief options to consider. This blog will explore the pros and cons of consumer proposals and bankruptcy.
Consumer Proposal
A consumer proposal is a debt relief option that allows you to make a formal offer to your creditors to settle your debts. This proposal is made through a Licensed Insolvency Trustee (LIT), who will work with you to develop a realistic and affordable proposal. Once the proposal is accepted by your creditors, you will make one monthly payment to the LIT, who will distribute the funds to your creditors.
Pros:
- You can keep your assets: In a consumer proposal, you get to keep all your assets, including your house, car, and personal belongings.
- Lower monthly payments: The monthly payments in a consumer proposal are often lower than what you would pay with other debt relief options such as debt consolidation or debt management plan.
- Stay of proceedings: Your creditors can no longer collect any unsecured debts you have against them.
- Your credit rating will not be as severely impacted as in a bankruptcy: While a consumer proposal may negatively impact your credit score, it will remain on your credit report for only three years after completion, but it will never be more than 6 years.
Cons:
- You must pay a portion of your debt: In a consumer proposal, you must pay a portion of your debt, usually between 20-30% of what you owe (each case is different). If you cannot afford to make the payments, the proposal may be annulled, and you may need to consider other debt relief options.
- It may take longer to complete than a bankruptcy: A consumer proposal typically takes longer to complete than a bankruptcy, often lasting up to five years. However, this can be completed sooner if you are able to.
- Your creditors can reject the proposal: While most creditors will accept a consumer proposal, there is a risk that one or more creditors may reject it, and there may be a need to make a counteroffer to your creditors. In our experience, there is over a 99% approval rate in consumer proposals.
Bankruptcy
Personal bankruptcy is another debt relief option that can help eliminate your debts. It is usually used as a last resort; however, it can be a great option for many people. Once your bankruptcy is discharged, you will be free from most of your unsecured debts.
Pros:
- Lowest cost option: A personal bankruptcy is typically less expensive than other debt relief options
- Stay of proceedings: This means that your creditors can no longer collect any unsecured debts you have against them.
- It's typically a quick process: A bankruptcy can typically be completed in as little as nine months for a first time bankrupt.
- Your creditors cannot reject your bankruptcy: Unlike a consumer proposal, your creditors cannot reject a bankruptcy filing.
Cons:
- You may lose some assets: In a bankruptcy, you may be required to surrender some of your assets to the trustee. This would be discussed at your initial consultation with your licensed insolvency trustee to determine whether bankruptcy is your best option.
- A bankruptcy will remain on your credit report for up to seven years after your discharge.
- It may not eliminate all your debts: Some debts, such as student loans (that are less than seven years old since you finished school), court-ordered fines, and child support payments, may not be eliminated in bankruptcy.
Conclusion
Both consumer proposals and bankruptcies are viable debt relief options for those struggling with debt. While each option has its pros and cons, it's important to speak with a licensed insolvency trustee to understand which option is best for you. They can help you weigh the pros and cons of each option and determine which option is best for your unique financial situation. Regardless of which option you choose, debt relief is possible, and you can take steps toward a fresh start.
