Consumer Proposals vs Bankruptcy

Struggling with debt? A consumer proposal vs bankruptcy could be your path to financial freedom—but which one is best for you?

Yanch Dey, we help individuals in Ontario reduce their debts, protect their assets, and rebuild their financial future. Learn the key differences between consumer proposals vs bankruptcy and find the best solution for your situation.

📞 Call us today at 905-721-7506 for a FREE debt consultation!

Both consumer proposals and bankruptcy provide a way to eliminate debt, but they work in very different ways. The main differences are in how they impact your assets, credit score, and financial responsibilities during the process.

1. Protecting Your Assets

A consumer proposal allows you to keep your home, car, and savings, as it does not require asset liquidation. In contrast, bankruptcy often requires you to surrender non-exempt assets to repay creditors.

2. Credit Score Impact

Declaring bankruptcy results in an R9 credit rating, the lowest possible score, which stays on your report for six to seven years after discharge. A consumer proposal results in an R7 rating, which remains on record for three years after completion—making it easier to rebuild your credit faster.

3. Financial Obligations & Payments

A consumer proposal involves fixed monthly payments over a set period (up to five years), with no interest. Bankruptcy may require surplus income payments, meaning if your income increases, your payments may rise.

4. Duration on Your Credit Report

A consumer proposal is removed from your credit report in three years, while a first-time bankruptcy remains for six to seven years.

Which Option Is Right for You?

If you want to keep your assets and minimize credit damage, a consumer proposal is often the better choice. If your debt is too overwhelming to repay, even at a reduced rate, bankruptcy may be necessary for a fresh start.

📞 Call Yanch Dey today at 905-721-7506 for a FREE consultation! Let’s find the best debt solution for you.

At the heart of the debt relief are two key options: consumer proposals and bankruptcy. Each route offers a choice for individuals to address their financial burdens.

Consumer Proposals

• Debt Limit: Up to $250,000
• Repayment: Repayment of a portion of debts over up to 5 years
• Assets: No assets are seized in a consumer proposal
• Impact on Credit: Proposals affect the credit rating for up to 6 years from filing
• Duration: Up to 5 years, with early repayment options
• Employment: No effects
• Cost: Setup fee included in monthly payments

Bankruptcy

• Debt Limit: No minimum, but typically for debts over $1,000
• Repayment: No repayments but assets are liquidated
• Surplus income payments: If your income is too high you may be required to make extra or surplus payments
• Assets: You must surrender of non-exempt assets, with exceptions e.g. personal items, tools of the trade, vehicles under a legislated amount.
• Impact on Credit: Dramatically affects credit, R9 rating for 6 to 7 years post-discharge
• Duration:9 to 21 months, depending on surplus income
• Employment: Reporting requirements for professional designations
• Cost: Approximately $1,800 plus additional costs based on income

Where possible in comparison of consumer proposals vs bankruptcy, consumer proposals have many advantages.

You might consider a consumer proposal over bankruptcy because it allows you to repay a portion of your debts without losing your assets, and it has a less severe impact on your credit rating, making it a more manageable path to financial recovery.

Additionally, a consumer proposal offers a structured repayment plan that can be adjusted to fit your financial situation, providing a more predictable and less disruptive approach to dealing with debt.

You might consider bankruptcy vs a consumer proposal if you’re dealing with an overwhelming amount of debt that is beyond your capacity to repay, even at a reduced rate, offering a fresh start by discharging most debts quickly.

Bankruptcy may also be more suitable if you have minimal assets to lose or if the immediate relief from financial pressures outweighs the potential impact on your credit score and employment opportunities.

★★★★★ I called thinking bankruptcy and losing a lot, but Yanchdey showed us how a proposal would get us out of debt without losing anything.  We saved $32,000, and will be debt free in 4 years!

Bankruptcy can affect employment in several ways, depending on the nature of your job and the policies of your employer.

• Professions requiring financial responsibility: Roles in banking, law enforcement, real estate, and legal professions may be impacted, as employers might view bankruptcy as a sign of financial unreliability.
• Reporting: Many professional designations require that a bankruptcy be reported, whereupon a consumer proposal does not have reporting rules.  As well a bankruptcy on a credit report may exclude you from employment in that field.
• Positions involving money handling: Jobs that involve managing finances could also be affected, with potential impacts on eligibility or continued employment.
• Jobs requiring bonding: If your position requires you to be bonded, bankruptcy might hinder your ability to meet these criteria. Being bonded is a form of insurance protection for the employer against loss or theft, and bankruptcy can raise concerns about trustworthiness and reliability.

People with professional designations should consider consumer proposals if possible, as these do not affect employment. It’s important to note that the impact of bankruptcy on employment varies widely and often depends on individual circumstances and local laws.

In Ontario, how your home is affected depends on whether you file for bankruptcy or opt for a consumer proposal.

In bankruptcy vs a consumer proposal, you might have to surrender your home if its equity exceeds the allowed exemption limit. This could mean losing your property to settle debts.

On the other hand, a consumer proposal allows you to keep your home, as it involves negotiating a repayment plan with your creditors without liquidating assets. This means you can protect your home while still addressing your debt obligations.

Consequently, a consumer proposal is a more favorable option for homeowners seeking to manage their debts without losing their property.

The debt limit is a factor between a consumer proposal and bankruptcy.

Consumer proposals are for individuals with up to $250,000 in unsecured debt. Bankruptcy, has no debt limit but lead to the forfeiture of significant assets.

When considering the differences between consumer proposals vs bankruptcy, you’ll want to know how each method addresses debt:

Consumer Proposals:

This approach involves negotiations with creditors to arrange a repayment plan. This plan allows you to cover a portion of your debts based on what you can afford, over a timeframe that can extend up to five years. This strategy is designed to:

• Offer a manageable way to clear your debt.
• Reduce the impact on your daily finances.
• Provide a predictable and structured path to financial freedom.

Bankruptcy:

In contrast, the obligations tied to bankruptcy are shaped by:

• Your income level, and
• The total value of your assets.

This can lead to a less predictable financial situation throughout the bankruptcy process. Additionally, you may be required to make surplus income payments, adding another layer of financial responsibility.

This breakdown illustrates the a key difference in the consumer proposals vs bankruptcy, the structured flexibility of consumer proposals against the potentially changing payments of bankruptcy.

★★★★★ After years of struggling with credit card debts I was deeper and deeper in the hole. I was able to get out of debt and pay off my outstanding loans to my creditors in 5 years with a consumer proposal and without considering a bankruptcy. Now I’m stress free and the collection calls have stopped, Many thanks! Julie Davies, Oshawa.

One of the most compelling reasons many choose a consumer proposal over bankruptcy is because of asset protection (the things you own).

Consumer proposals allow individuals to keep their assets, including vehicles, homes, and personal belongings. In a proposal you do not surrender any property or monies.

In bankruptcy to relieve your debts, you must declare or list all your assets for the insolvency trustee. The bankrupt is allowed to can keep essential personal items, including professional tools, a moderately valued vehicle, and household essential, but everything else of value is sold. The trustee will liquidates your “non-exempt assets” to put towards the outstanding debts.

The impact on your credit score and the duration of recovery can vary significantly between a consumer proposal and declaring bankruptcy.

• Consumer Proposal Impact:
  • Results in an R7 credit rating.
  • Less severe compared to bankruptcy.
  • Offers a shorter path to financial recovery, allowing for quicker credit repair and financial stability.
• Bankruptcy Impact:
  • Leads to an R9 credit rating, the most severe impact on credit.
  • Entails a longer period of credit recovery.

Given these differences, a consumer proposal often emerges as the more appealing choice for individuals aiming to swiftly rebuild their financial standing, underscoring the necessity of understanding the specific effects each option has on one’s credit health and future financial rehabilitation opportunities.

★★★★★ We didn’t know what to do, I called they were friendly and easy to talk to, and I was immediately relieved that I had taken this first step.  Thanks again for getting me out of debt! Jo-ann D. Oshawa