Consumer Proposals Are Often Better Than Bankruptcy – Here’s Why.
In Canada, the majority of adults have some form of debt.
However, increasing financial obligations and rising house prices means that the average amount of debt we have is getting higher.
What’s more, an increasing number of people are struggling to manage their debts effectively.
Ultimately, this means that more people are looking for debt solutions.
If your debts are becoming unmanageable or your financial situation has changed and you’re no longer able to make your repayments, you may be looking for a viable long-term solution.
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Bankruptcy is often seen as a last resort, but, as the figures show, more Canadians are choosing to make consumer proposals.
While you should always consider every debt solution carefully, it’s important to understand the consequences associated with these two forms of debt resolution.
With bankruptcy, in particular, you could eliminate your debts but also lose some of your assets.
In addition to this, being declared bankrupt could have an impact on your professional life, particularly if you’re a company director or you manage a limited company.
However, a consumer proposal can provide you with a viable way to reduce your overall debt while avoiding some of the trickier consequences associated with bankruptcy.
To find out more, take a look at these nine reasons why a consumer proposal is almost always a better idea than a bankruptcy…
1. You avoid being declared bankrupt
One of the most obvious benefits of making a consumer proposal is that you avoid being declared officially bankrupt.
Although a bankruptcy will eventually be removed from your credit file, the Office of the Superintendent for Bankruptcy keeps a record of anyone who has been declared bankrupt.
This means your bankruptcy will always be kept on file somewhere.
While this, in itself, may not be too problematic, it could become difficult if you were ever to experience financial problems again.
Although you are permitted to file for bankruptcy twice, a second-time bankruptcy is slightly different from a first-time bankruptcy.
For example, it takes longer for a second-time bankruptcy to be discharged.
Although the stigma of being declared bankrupt shouldn’t prevent you from using a debt solution that’s right for you, it may be wise to avoid being declared bankrupt if other options are available to you.
This will mean that the option to file for first-time bankruptcy always remains open to you but gives you the chance to try other resolutions first.
2. You don’t need to report your monthly finances
Both consumer proposals and bankruptcies are dealt with by licensed insolvency trustees (LITs).
If you decide to use either of these legal processes to resolve your debt problems, you will work with a licensed insolvency trustee throughout.
However, the obligations placed upon you differ, depending on whether you file for bankruptcy or you make a consumer proposal.
When you file for bankruptcy, for example, you will need to provide your licensed insolvency trustee with a detailed list of your income and expenditure every month until your bankruptcy is discharged.
In contrast, there is no such requirement when you make a consumer proposal.
Although you may have other obligations you need to fulfil, such as attending credit counselling sessions or notifying your trustee of any major changes to your financial circumstances, you won’t be required to submit monthly income and expenditure reports.
3. Surplus income doesn’t alter your repayments
Until your bankruptcy is discharged, your monthly income and expenditure reports will be assessed.
If you receive surplus income, such as a windfall or inheritance, this could have an impact on your bankruptcy and the funds could be seized and redirected to your creditors.
When you make a consumer proposal, however, the amount you repay every month is typically fixed.
This means that receiving surplus income won’t change the amount you’re required to pay each month.
Furthermore, if you choose to make extra payments, you could complete your consumer proposal more quickly than you originally intended.
4. Immediate impact on your cash flow
A bankruptcy is usually discharged within nine months, although this can be extended in some cases.
In contrast, the maximum amount of time a consumer proposal can run for is five years.
At first, it may seem like the swift resolution offered by bankruptcy is advantageous.
However, this isn’t always the case.
As bankruptcies are discharged relatively quickly, you may need to make significant sacrifices in order to pay back your creditors as much as possible.
Your assets may be seized so that creditors can receive some or all of what you owe to them, for example.
With a consumer proposal, however, you have a longer period of time to pay back what you owe.
Although the overall amount you’re required to pay back will be far lower than what the overall debt you currently have, you’ll have a maximum of five years to make these repayments (depending on the terms of your consumer proposal).
This means that you can tailor your consumer proposal in accordance with your other financial obligations, such as your essential expenditure and family costs.
With the potential to free up a significant amount of your income straight away, a consumer proposal can have an immediate and positive impact on your cash flow.
5. You won’t lose your assets
When someone files for bankruptcy, their assets are evaluated and determined to be exempt or non-exempt.
Your licensed insolvency trustee will generally take control of your non-exempt assets and these could be seized in order to pay back your creditors.
Depending on your personal circumstances, this could mean that a significant amount of your property is taken from you.
The same rules don’t apply to a consumer proposal, so you won’t need to worry about having any assets seized or forfeiting your rights to your property.
Although you will need to disclose what assets you have to your licensed insolvency trustee, he or she will not take control of them at any point.
6. Rebuild your credit score more quickly
If you’re unable to manage your debt, there’s a good chance your credit score has already been impacted.
Both bankruptcy and consumer proposals can have further negative effects on your credit report, but it can be easier to rebuild your credit score following a consumer proposal.
If you file for bankruptcy, you won’t be able to obtain credit until it has been discharged.
In the two years following a bankruptcy discharge, it can be particularly difficult to access credit, apart from loans with very high interest rates.
You may, therefore, have to wait a considerable amount of time before you can begin to access credit facilities and rebuild your financial standing.
When you make a consumer proposal, however, you can apply for credit at any time after your proposal has been accepted by your creditors.
In addition to this, the successful completion of a consumer proposal tends to have a noticeably positive impact on your credit score, which should make it even easier for you to access credit in the future.
7. Less impact on your employment prospects
During recruitment processes, organizations tend to run a large number of checks on prospective candidates.
Companies are increasingly running credit checks on job applications, so a record of bankruptcy on your file could make it harder for you to find employment.
However, a consumer proposal isn’t generally viewed in the same way as a bankruptcy.
With less stigma to overcome, it’s far less likely to have a negative impact on any future job searches or applications you make.
8. No impact on immigration sponsorship
If you’re declared bankrupt, it could prevent you from being able to sponsor a family member who wants to emigrate to Canada.
Although this may not be a significant disadvantage for some people, it could be catastrophic if you have family members living overseas who are eager to make Canada their home.
9. Less emotional impact
Although bankruptcy can be a viable way to resolve your debt problems, many people feel like it’s the last resort.
In fact, a considerable number of people feel like they have failed if they are declared bankrupt, which can have a significant impact on their emotional well-being.
Making a consumer proposal doesn’t tend to cause the same emotional distress as bankruptcy does, which means many people find it a more preferable solution to debt problems.
Furthermore, the high rate of Canadians choosing to make a consumer proposal reassures people that this course of action isn’t a declaration of failure but rather a reasonable, sensible and pragmatic way to deal with spiralling debts.
Contact Bankruptcy Canada Now
To learn more about consumer proposals or to talk to a trustee about your financial situation, contact Bankruptcy Canada now on (877) 879-4770.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?