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Bankruptcy or Consumer proposal – Which One is Right for Me?

By Ryan Brown

Bankruptcy or Consumer proposal – Which One is Right for Me?

Understanding your options when faced with debt can be stressful and quite frankly, confusing. Although struggling with debt can be overwhelming, it’s important to know that there are solutions to help you get back on track. While you’ve likely heard of bankruptcy, another option available to you is a consumer proposal. It’s important to understand what these options mean and how they differ, so you can restructure your debt in the most effective way.

4 Pillars Debt Solutions of Sudbury can guide you through the debt relief process and work with you to determine the right choice for your personal situation.

There are benefits that both a consumer proposal and bankruptcy share that can help you get back on track:

  • 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?

An alternative to personal bankruptcy, a consumer proposal is a debt restructuring option that lets you repay a percentage of what you owe. A consumer proposal gives you legal protection from your creditors under a Federal Statute (the Bankruptcy and Insolvency Act), without interest or penalty. Once the proposal is accepted, your creditors agree to forgive the remaining balance, so long as you complete the terms of your proposal. You might question why creditors would accept these terms; as a general rule, they are likely to recover more money this way, than they would if you were to go bankrupt.

A consumer proposal is a partial repayment offer you make to all of your unsecured creditors. Your 4 Pillars agent presents the proposal to a Licensed Insolvency Trustee. The trustee, who is a court officer and has a duty to represent the creditors, may voice a rebuttal or concerns about the proposal terms. If this occurs, it is your 4 Pillars agent’s job to make petition on your behalf as to why he/she considers the presented proposal reasonable and fair. Once the trustee is in agreement 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, at which time they 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 easier to manage which gives you peace of mind, knowing that your payment and the new debt amount will not increase over the duration of the repayment period.  If you would rather the proposal not 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. Furthermore, 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 immediately.

An advantage of filing a consumer proposal (a 7 rating) is that the negative effect on your credit score is usually not as severe as in a bankruptcy (a 9 rating). This makes it quicker and easier for you to rebuild your credit.

What Bankruptcy Means

Bankruptcy is a “last resort” debt restructuring option available to you when have run out of other possible options. The most severe form of debt restructuring, it is also filed under the Bankruptcy and Insolvency Act. Important considerations with bankruptcy are:

  • 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 major differences between filing a consumer proposal and a 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, your income and estate can grow without negative ramifications

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

Whichever option you choose, be it a bankruptcy or a proposal, at 4 Pillars Sudbury we advocate for you, not your creditors, and work to ensure you receive the best possible payment terms. For further information on the consumer proposal and bankruptcy processes, or if you have general questions around debt help, contact 4 Pillars today. Your journey to becoming debt-free awaits you.

Ryan Brown

Director/Senior Consultant

GREATER SUDBURY                        

430 Notre Dame Ave
Greater Sudbury, ON P3C 5K7
P: 705-806-1252
Fax: 1-888-771-3112

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