Why Choose a Consumer Proposal over a bankruptcy?
Often we are asked if a consumer proposal is the same as claiming bankruptcy. Does it leave the same mark on your credit report or does it prevent you from getting credit again? I would like to address these questions in today’s blog and hopefully help you to understand what the difference is and how a consumer proposal can be a better option for those people in financial trouble.
Before going further let’s talk about what a Bankruptcy and Consumer Proposal are.
Bankruptcy
Bankruptcy is a tool that can be used for consumers who have uncontrollable debt and have 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. In a bankruptcy regular payments are made in the amount agreed upon. You have to give full disclosure of your income and report to a bankruptcy Trustee every month until you are discharged from your bankruptcy. A Bankruptcy can 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.
Consumer Proposal
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 monthly payment with the repayment period lasting up to 60 months. In a consumer proposal you will need to also give full disclosure of your income and assets but you do not need to file reports on a monthly basis. A consumer proposal can be a helpful tool to use if a person is severely struggling financially and does not wish to claim bankruptcy.
How does a Bankruptcy affect a person differently than a Consumer Proposal?
Both of these options are meant for people whose choices are running out and are in need of serious debt help. Both options will affect your credit and in both cases you must be insolvent which means you have more debt than assets.
In a Bankruptcy you will have an R9 on your credit bureau which is the worst score you can have. An R9 means you have bad debt; debt that was not taken care of, had to be placed into collection or was put into a bankruptcy. This R9 will stay on a person’s credit bureau for 7 years in a first time bankruptcy. It is difficult to obtain credit again after receiving an R9 on your credit report and you won’t be able to begin credit rebuilding or receive any credit until after the bankruptcy is discharged.
In a Consumer Proposal you will receive an R7 on your credit bureau which is not as damaging as an R9. It is also easier to begin to rebuild your credit than in a bankruptcy. A person can begin to rebuild their credit immediately after filing a consumer proposal.
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.
