Choosing Between A Consumer Proposal and Bankruptcy

Debt is a very real issue for many Canadian households.

As a nation, we owe an average of nearly $21,000 each without even factoring in our mortgage debt.

We’re paying over 14% of our disposable income per month on repayments, and over 7% on interest alone.

Over time, our debts can place a stranglehold on our household cash flow.

It can become impossible to scrape together enough money to put into our savings.

As a result, when unexpected expenses occur, households have no choice but to lean on more sources of credit, deepening the debt hole.

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The more in debt they become and the more their credit rating deteriorates, the more likely they are to rely on high-interest forms of credit like cash advances on their credit cards or payday loans.

Over time, as diligently as you may try to keep up with your repayments, they may escalate ton the point where you can no longer realistically repay your debts.

As you default on more and more payments, you may incur additional penalty charges.

It’s important to take action.

But what kind of action is best for you?

Here we’ll compare Personal Bankruptcy to a Consumer Proposal so that you can choose the right option for your needs and circumstances.

What is Bankruptcy?

Personal Bankruptcy is a legal process whereby your debts may be forgiven in part or in their entirety.

It is regulated under the Bankruptcy and Insolvency Act.

Bankruptcy can come with a range of benefits, as well as some important caveats.

As soon as you file for Bankruptcy, a Stay of Proceedings goes into effect.

This means that your creditors can no longer take any forms of action like Wage Garnishment to recover the debt.

It also puts a stop to threatening letters and phone calls.

However, some of your assets may be forfeited to satisfy your creditors.

This may include your home if you have more than $10,000 in equity.

As part of the Bankruptcy process you will also have to undertake 2 mandatory Credit Counselling sessions.

These can be extremely helpful in helping you identify when and how your debts got out of control.

They can also help you to make better financial choices in the future, including saving and budgeting so that you will never have to rely on credit again.

Your first Bankruptcy will stay on your credit report for 6 years, while your second will remain for 14 years.

Thankfully, few people file for a third.

When filing for Bankruptcy in Canada, you are expected to satisfy certain requirements within the first 9 months.

If you do this, your bankruptcy ends in an automatic discharge.

If you fail to do this, however, your bankruptcy may go to court where your creditors will have the opportunity to oppose the discharge of your debts.

Why choose Bankruptcy?

There are a number of reasons why insolvent Canadians choose Bankruptcy.

The most common include:


  • They want to put an end to the process quickly. Bankruptcy generally allows Canadians to get the fresh shart they need faster.
  • They have few assets to lose. Those who are asset poor may find Bankruptcy the most affordable option.
  • They want to learn how to live without relying on credit.
  • They want to make significant changes to their lifestyle and live more within their means.
  • They are unsure what their income will be in the future.


What is a Consumer Proposal?

A Consumer Proposal is a popular alternative to Bankruptcy.

Indeed, over 50% of insolvencies in Canada are now settled by a Consumer Proposal.

A Consumer Proposal is an effective cross between a Debt Management Plan and a Personal Bankruptcy.

Under a Consumer Proposal, your debts can be significantly reduced, although they cannot be forgiven altogether.

All interest payments as well as additional charges are written off.

Even the principal debt can be reduced by as much as 80%.

You cannot put a Consumer Proposal in place without a licensed Proposal Administrator.

They will audit your income, your assets and your debts before working with you to put together a proposal that will be easy to manage for you but also appealing to your creditors.

The proposal is then put to your creditors.

If 51% or more of them agree to the terms, the proposal is put in place and is legally binding.

This means that even if a creditor did not agree to the terms, they are still legally bound by them.

It’s important to note, however, that you too are bound by the same terms.

Default on three payments and the arrangement will be voided and you’re right back where you started.

A Consumer Proposal can get you completely debt-free within 5 years and will remain on your credit report for up to 3 years after it has been settled.

It also puts an immediate stop to Wage Garnishment and other punitive measures.

Why choose a Consumer Proposal?

There are lots of reasons why many consider a Consumer Proposal more appealing than filing for Bankruptcy.

These include:


  • Their assets are better protected.
  • The proportion of their disposable income spent on repayments is significantly reduced, enabling them to take control of their finances.
  • Their debt becomes much easier to manage.
  • They don’t want to live with the stigma of Bankruptcy for personal or professional reasons.


What is a Licensed Insolvency Trustee, and how can they help?

Whichever option you choose, you’ll need the help of a Licensed Insolvency Trustee.

Click Here to find one near you.

They can help you to make an informed decision on which option best suits your needs and facilitate whichever you choose.

They will act as your Proposal Administrator if you choose a Consumer Proposal.

If you’d prefer to file for Bankruptcy, they can help you to meet the necessary obligations to get your debts automatically discharged.

Since 1999, we’ve helped over 100,000 Canadians from all walks of life to find the right insolvency solutions to fit their needs and find an Insolvency Trustee.

Unlike Credit Counselling services, we can inform you of all your options and give you the guidance and support to choose the right one for you.

Want to know more? Call us today on (877)879-4770 to arrange a risk-free, zero-obligation and 100% confidential callback.

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

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
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?

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