When you make a consumer proposal, you compromise your total debt. That means that you pay a portion of your debt that you and your creditors agree upon. Therefore your payments are higher than a bankruptcy.
In terms of time, consumer proposals last 60 months, while bankruptcies last nine months (if you don’t have surplus income) or 21 months (if you do have surplus income).
So if bankruptcies are cheaper and quicker than consumer proposals, why would someone consider a consumer proposal over a bankruptcy?
It all depends on your situation.
If you have a consistent source of income and are able to make the monthly payments agreed upon in a consumer proposal (but not the payments on your current debts), it’s probably wise to make a consumer proposal. Not only will it allow you to avoid bankruptcy (while still receiving the benefits of bankruptcy), it will result in a R7 credit rating opposed to an R9 credit rating. With a proposal, your R7 credit rating will remain on your credit report for three years after your proposal is paid in full. In the case of a bankruptcy, your R9 credit rating will remain on your credit report for six years after you’ve been discharged from your bankruptcy.
In a bankruptcy you may lose certain assets (such as valuable cars, houses, certain RRSPs) whereas in a proposal you can retain your assets. For example, if you own a car (that you would, possibly, lose in a bankruptcy), and need it to get to work, a proposal may be the logical option for you.
Consumer proposals aren’t right for everyone. In fact, you have to actually be eligible to make a proposal. These are the qualifications:
Be insolvent (unable to pay your debts as they become due)
Have total debts less than $250,000 (excluding the mortgage on your principal residence)
Have a stable source of income to ensure that you will be able to make the payments each month, or have someone willing make a lump sum payment on your behalf, (for example, a family member.
It’s always better to make a consumer proposal if it’s feasible. If you are unsure which process is best for your situation, contact us for a free consultation. We can discuss all options and agree upon the best solution for you.
