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Bankruptcy or Consumer proposal – What’s the Difference?

By Ryan Brown

When debt becomes overwhelming and unmanageable, it’s important to know that there are solutions. Two options available to you are a consumer proposal and bankruptcy. It’s important to understand what these options mean and how they differ, in order to determine which is the correct path for you.

4 Pillars Debt Solutions of Muskoka & Parry Sound will work with you to determine the right choice for your personal situation, and guide you through the process from start to finish.

Common benefits that both a consumer proposal and a bankruptcy share are:

  • Collection agencies and creditors can no longer contact you
  • Interest stops accumulating as soon as the consumer proposal or bankruptcy is filed
  • Most wage garnishments cease immediately


What Exactly is a Consumer Proposal?

A consumer proposal is a debt restructuring option that allows you to repay a percentage of your debt, without experiencing the full impact of bankruptcy. It provides you with legal protection from your creditors under a Federal Statute (the Bankruptcy and Insolvency Act), so you can pay back a portion of what you owe without interest or penalty. You might wonder why creditors would accept these terms; generally, it allows them to recover more money than they are likely to get if you do go bankrupt.

Essentially, a consumer proposal is a repayment offer you make to all of your unsecured creditors. Your 4 Pillars agent presents a proposal to a Licensed Insolvency Trustee. The trustee is a court officer whose duties include representing your creditors; upon review, the trustee may have a rebuttal or concerns about the proposal terms. It is your 4 Pillars agent’s job to make petition on your behalf as to why he/she believes the presented proposal is reasonable and fair. Once the trustee agrees with the proposal terms, they will sign off on it, stating that they have investigated the affairs of the debtor, that the proposal is reasonable and fair, and that the debtor will be able to perform it. The trustee then files the proposal to all of your creditors simultaneously, who will then vote on the offer; once it is accepted, the proposal gets the stamp of approval and the proposal payments begin.

The repayment amount is based on your budget and ability to pay, and has a repayment period of up to 60 months. You agree to a single, fixed monthly payment that is within your means and easier for you to manage. You also get peace of mind knowing that your payment and the new debt amount will not go up over the duration of the repayment period.  If you prefer the proposal not to carry on for a full 60 months then you can pay it off early, or you can make a one-time lump sum proposal payment offer instead of a 60-month offer. Additionally, if you are looking to make a major credit purchase and need to accelerate your credit rebuilding, you may qualify to acquire a loan (exclusive to 4 Pillars) to pay off your proposal right away.

Another consideration, the negative effect on your credit score is generally not as severe with a consumer proposal (a 7 rating) as in a bankruptcy (a 9 rating), making it quicker and easier to rebuild your credit.

What Bankruptcy Means

Bankruptcy is a debt restructuring option available to you when your debt has become overwhelming and you have run out of other viable options. The most severe form of debt restructuring, it is also filed under the Bankruptcy and Insolvency Act. It’s important to note that:

The bankruptcy remains on your credit rating for seven years post discharge

  • On occasion, bankruptcy can adversely affect your ability to work in regards to retaining professional designations or business licensing and legal requirements

A few more notable differences between consumer proposals and bankruptcy are:

When a consumer proposal is filed to your creditors, the Licensed Insolvency Trustee cannot liquidate your assets. In a Bankruptcy however, your entire estate vests with the Licensed Insolvency Trustee. You may be required to buy some of your estate back from the trustee, or else the trustee may liquidate some of your assets

  • A bankruptcy, depending on your situation, for a first time bankrupt is up to 21 months and for the second time bankrupt is up to 36 months. Alternatively, you can file as many consumer proposals as may be needed without facing more severe consequences
  • In a bankruptcy, you may be seriously limited as to how much of your income you get to keep every month. There is less incentive while in bankruptcy to go out and work harder, make more money, get a raise, etc. In short, the more you make, the more you are required to hand over to the Licensed Insolvency Trustee. This does not happen in a consumer proposal. In a proposal, the payment is fixed and so long as you make your payments, you income and estate can grow without negative ramifications


4 Pillars Debt Solutions of Muskoka & Parry Sound provides experienced bankruptcy consultation. An agent will guide you through the process and help to ensure it doesn’t happen again.

Be it a bankruptcy or a proposal, at 4 Pillars Muskoka & Parry Sound we represent you, not your creditors, and negotiate on your behalf to get you the best possible payment terms. For more information on consumer proposals and bankruptcy, or general questions around debt help, contact 4 Pillars and begin the journey to becoming debt-free.

Ryan Brown

Director/Senior Consultant


1 Crescent Road
Huntsville, ON P1H 1Z6
P: 705-640-0187
Fax: 1-888-771-3112

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