9 Reasons to File a Consumer Proposal instead of Personal Bankruptcy

Reasons to Choose a Consumer Proposal For Debt Relief and Not Bankruptcy

Dealing with debt is not an easy journey, and it’s often a path riddled with difficult decisions. However, after having assisted countless individuals with their financial obligations, we have unraveled the most common reasons why people lean towards filing a Consumer Proposal over Personal Bankruptcy. Here are the nine primary considerations:

1. Stepping Away from the ‘Bankruptcy’ Stigma

The term ‘bankruptcy’ can have a profound psychological impact on individuals, even when it presents the best solution to their debt problems. A Consumer Proposal, however, doesn’t carry the same label.

2. Flexible and Achievable Terms

Personal bankruptcy might require hefty surplus income payments or the possession of substantial equity in retained assets such as a house. The ensuing payments to conclude your bankruptcy on time may seem unattainable. While a Consumer Proposal might cost more, it permits spreading these payments over five years with an option for early payoff.

3. Preserving the “First Bankruptcy” Option

Unforeseen financial crises can strike anyone at any point in life. A first-time bankruptcy is less cumbersome than subsequent ones, which are longer and have a more extended impact on your credit report. Thus, many individuals prefer to file a Consumer Proposal during their initial financial difficulties and reserve the ‘first bankruptcy’ option for a more dire situation.

4. Less Impact on Credit History

A Consumer Proposal can have a significantly lesser detrimental effect on your credit history than multiple bankruptcies. While a second bankruptcy could linger on your credit report for up to 16-17 years, a Consumer Proposal is only recorded for three years post-completion. For additional details, visit Equifax.ca and Transunion.ca.

5. Avoid Public Disclosure

Filing personal bankruptcy involves the public declaration of your bankruptcy in local newspapers if you have equity assets exceeding $15,000. On the other hand, Consumer Proposals do not mandate any such public notice.

6. No Influence on Future Earnings

An approved Consumer Proposal is not affected by future earnings. In contrast, Personal Bankruptcy might result in increased payments if your monthly income rises.

7. Retaining Windfalls

A windfall, such as lottery winnings or inheritance, doesn’t impact an approved Consumer Proposal. But, in a bankruptcy, the windfall must be reported to the Trustee and transferred for distribution to your creditors.

8. Minimal Reporting

A Consumer Proposal doesn’t require monthly or periodic income and expense reports, unlike Personal Bankruptcy.

9. No Impact on Professional Standing

Certain professionals are obliged to report their bankruptcy to their respective professional bodies. However, this is not usually the case with Consumer Proposals. Professionals should refer to their respective body’s rules and regulations for clarity.

In conclusion, while both Consumer Proposals and Personal Bankruptcy offer paths to financial recovery, the former often provides a more flexible, less stigmatizing, and less impactful route. However, always consult with a professional to make an informed decision that best suits your unique circumstances.

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