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Consumer Proposal or Bankruptcy? Which is Right for Me?

By Darrell Pauls

Consumer Proposal or Bankruptcy? Which is Right for Me?

When a person has come to the point in their finances where they are severely struggling and can no longer make their payments, it is time to make a tough decision about what needs to be done. Whether a person chooses to claim bankruptcy or file a consumer proposal, the choice is completely up to them. It is always a good idea to be informed about each option and know the benefits and drawbacks before committing to either choice.  In order to know which debt strategy is best, one needs to research the options with an open mind knowing that there will be positives and negatives for each. Let’s take a look at consumer proposals as well as bankruptcies and learn a little more about each of them.


Bankruptcy is a tool that can be used for people who have debt that is out of control and there simply isn’t any other option. It is a court process where consumer debts can be wiped out completely or paid back under the protection of the bankruptcy court and the supervision of a Licensed Insolvency Trustee (LIT). Monthly payments are made during the bankruptcy based on your income and family size until you are discharged from your bankruptcy. You have to give full disclosure of your income as well as your assets to your LIT. You also must report to your LIT on a monthly basis during your bankruptcy to provide a report on your income for the previous month.  A bankruptcy is the most severe form of restructuring and therefore there are some drawbacks and negative outcomes for a person who files for bankruptcy. These can include having an R9 placed on your credit bureau (which is the worst possible credit score) for the next 7 years. You will also not be able to have access to credit until you are discharged from your bankruptcy and bankruptcy is a permanent record. Even then, it is difficult to regain credit.

Consumer Proposal

A consumer proposal (also administered by a LIT) is a legal process in which a debtor can come to an agreement with their creditors to pay back only a portion of what they owe without interest. The new debt is paid back on different terms in monthly payments over a course of up to 60 months.  You also must give full disclosure of your income as well as assets in a proposal, but monthly income reports are not needed. In a consumer proposal a person’s credit rating is affected, but not as severely as in a bankruptcy. An R7 is placed on a person’s credit bureau which is not as damaging as an R9 such as in bankruptcy. You are also able to begin rebuilding your credit immediately after filing a proposal. A consumer proposal is helpful for people who are in trouble financially, but do not want to claim bankruptcy.

Both of these options are meant for people who do not have much of a choice left and need desperate help with their debt.  If you would like to learn more about bankruptcy or consumer proposals, or if you would like to learn about all of the debt help options that are available to you, give 4 Pillars Red Deer a call at 403-755-1757. We can set up a free appointment to go over your current situation and help you make the right choice for you.

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