Bankruptcy vs. Consumer Proposal – What’s The Difference?
People often ask us the following questions. Is a Consumer Proposal just like filing for bankruptcy? Does it affect your credit in the same way a bankruptcy would? What is the difference between filing for bankruptcy or filing a Consumer Proposal? Today I would like to explain some of the differences between filing for bankruptcy and filing for a Consumer Proposal.
Bankruptcy
Bankruptcy is a tool that can be used if there are absolutely no other options. It is a court process in which consumer debts can either be wiped out or repaid under the protection of the bankruptcy court. A bankruptcy can only be filed by a Licensed Insolvency Trustee. In order to claim bankruptcy a person must be insolvent which means that their debt is more than their assets. A Bankruptcy will last up to 21 months if it is the first time a person claimed bankruptcy and up to 36 months for the 2nd time they are bankrupt.
In a bankruptcy:
- A bankruptcy Trustee takes control of the bankrupt’s assets during the bankruptcy.
- As soon as the bankruptcy is filed, collection agencies are no longer allowed to call and interest stops accumulating.
- All debts must be included except for secured debts such as a house or car loan.
- Full disclosure of all wages, debts and assets is required
- A person is required to visit the trustee to fill out monthly expense and earning reports until the bankruptcy is discharged
- If you earn more money than your household needs to live and survive, you must pay a portion of the extra income to your trustee for the creditors. The more money you earn, the more you will need to pay.
- Credit cannot be obtained until the bankruptcy is discharged
- An R9 will be placed on the person’s credit score and will remain there for 7 years.
- The bankrupt person is required to attend 2 counseling sessions
Consumer Proposal
A consumer proposal is a viable option for people struggling with debt and do not wish to claim bankruptcy. A consumer proposal is a legal process in which a debtor can strike a deal with their creditors to pay back a portion of what they owe without interest or penalty. The debtor’s unsecured debts are then grouped together into one payment with the repayment period lasting up to 60 months. A person must also be insolvent to file for a consumer proposal.
In a consumer proposal:
- As soon as the consumer proposal is filed, collection agencies are no longer allowed to call and interest stops accumulating.
- All debts must be included except for secured debts such as a house or car loan.
- Full disclosure of all wages, debts and assets is required
- Your creditors are required to vote on the consumer proposal. This gives them to option to agree to it or not. Although by law if more than 50% of the creditors agree to the proposal it must be accepted by all of the creditors.
- A person can begin to rebuild their credit immediately after filing a consumer proposal
- A R7 score is placed on a person’s credit score which is much less damaging than a bankruptcy score of a R9.
If you would like to learn more about bankruptcy, consumer proposals or would like to know the options available to you for your situation, give 4 Pillars Red Deer a call at 403-755-1757. We can set up a free appointment to go over your current situation and help you make the right choice for you.
