Both filing bankruptcy and making a consumer proposal will relieve debtors of financial stress and allows debtors the chance to get a financial fresh start. They are both great options, but there are many differences between bankruptcies and consumer proposals in Ontario and one may be better for you than the other. That’s why we review all options with debtors when they meet with us because filing bankruptcy might be the best option for one person, but a consumer proposal might be better for others. Here are some of the differences between the two debt settlement options:
Who can claim?
Bankruptcy: In Canada, any individual who owes at least $1,000 and is insolvent can file bankruptcy.
Consumer Proposal: If your personal debts are less than $250,000, excluding the mortgage on your principal residence, then you are eligible to make a consumer proposal.
Who can file?
Bankruptcy: Must be filed by a Licensed Insolvency Trustee.
Consumer Proposal: Must be filed by a Licensed Insolvency Trustee.
How much does it cost?
Bankruptcy: There is no set cost or fee for filing personal bankruptcy, though the typical minimum fee is $1,800 paid in nine monthly instalments of $200 each.
Consumer Proposal: The amount of the payment is based on your financial situation – it’s what you can afford.
How long will it last?
Bankruptcy: Minimum of nine months.
Consumer Proposal: Up to 5 years but maybe paid off earlier with no penalty.
Will I lose my assets?
Bankruptcy: In Ontario, the bankruptcy exemptions include:
Unlimited amount of personal possessions (clothing, jewelry, sports equipment, etc.);
One motor vehicle worth up to $6,600 (car, truck, etc.) that has no liens on it;
$13,150 worth of furnishings;
$11,300 worth of tools of the trade (equipment that you use to earn a living);
Certain types of life insurance;
All RRSP, RRIF and SPSP (Deferred Profit Sharing Plan) savings except contributions made in the 12 months before your bankruptcy
Consumer Proposal: You retain possession and control of your assets. Your creditors and/or the trustee have no interest in any of your property.
What about my tax refund?
Bankruptcy: It will need to be turned over a year prior to bankruptcy (if not already received and year of bankruptcy) to your creditors.
Consumer Proposal: You can keep your refunds.
How will it affect my credit rating?
Bankruptcy: Your credit rating will show R9 (the worst rating) during bankruptcy and for a period of 6 or 7 years (depending on credit reporting agency) after discharge in case of 1st time. For 2nd type, a period of 12 – 14 years after discharge (depending on credit reporting agency).
Consumer Proposal: R7 for a period of proposal and for 3 years after completed.
Will I have regular homework?
Bankruptcy: You must submit a report that details all income and expenses and includes pay stubs and certain receipts.
Consumer Proposal: No monthly reports.
Will it stop collection agencies from calling?
Bankruptcy: Contact from creditors will cease once filing begins.
Consumer Proposal: Contact from creditors will cease once filing begins.
If you’re considering filing bankruptcy or making a consumer proposal, contact our office today. We will review all options with you and find the option that works best for you.
