Consumer Proposal vs Bankruptcy – What is the Best Solution for You?

The best solution for you will depend on your individual circumstances and personal morals.  Both a bankruptcy and a consumer proposal are formal filings pursuant to the Bankruptcy and Insolvency Act and both provide you protection from your unsecured creditors.  They both impact your credit rating and stop a garnishment of your wages by Canada Revenue Agency and other creditors.  You must attend two credit counselling sessions in either solution.  The similarities end there.

Bankruptcy

• Assets with a value that exceeds a secured loan and are not exempt from seizure (e.g. furniture, vehicle up to $7,117) must be realized by your trustee for the benefit of your creditors. You can offer to buy the assets back from your trustee, but they must be paid for over a shorter period of time.
• Income tax refunds, GST and some other benefits are assets the trustee will directly receive.
• Surplus income payments may have to be paid to your trustee if your income exceeds a threshold based on your family size.
• You will be required to submit monthly income and expense statements and your surplus income payment may increase if your income increases during your bankruptcy.
• The trustee has the right to realize on after acquired assets which consist of inheritances, lottery winnings, etc.

Consumer Proposal

• An offer is made to your creditors to compromise your debt over a maximum of 5 years.
• The proposal must offer more to your creditors more than they would receive in a bankruptcy but because you are extending the payments over 5 years, the monthly payment is lower and more affordable.
• Future increases in income will not impact your creditor and Court approved proposal.
• Receipt of a future asset (inheritance) will not impact your creditor and Court approved proposal.
• You can always pay the proposal off sooner which removes the reporting from your credit report sooner.

Based on my experience, individuals with significant assets, the potential to receive an inheritance from a sick family member, high surplus income payments or the potential for their income to increase significantly typically prefer a consumer proposal.  I have also filed consumer proposals for individuals who have no assets and minimal income because they felt “it was the right thing for them”.

Taylor Leibow Inc. will review your financial situation in detail at a free consultation to educate you on solutions so you can make the right decision for you.