What is the difference between bankruptcy & consumer proposal?

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Navigating debt in Canada can feel daunting, but you have options like bankruptcy and consumer proposals, each with its own benefits. Bankruptcy is quick and for those with debts over $1,000, but it might involve giving up assets. Consumer proposals cater to unsecured debts under $250,000 and often let you keep your assets. Credit scores take a hit with both, but proposals are less clingy. Remember, not all trustees can be trusted. Reach out via phone, text, or live chat if you have any questions.

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Bankruptcy Vs Consumer Proposal Question

What is the difference between bankruptcy and consumer proposal? I’ve heard about both but don’t understand how they’re different and which might be the better option for me.

From: Anonymous Question
Location: London, Ontario (ON)
Category: consumer proposal

Bankruptcy Vs Consumer Proposal Answer

Navigating the world of debt management in Canada can feel a bit like walking a tightrope, but hey, you’re not alone! You’ve got options, like bankruptcy or a consumer proposal, each with its own quirks and perks.

So, you’ve hit a debt wall and need a plan? Bankruptcy is your fast track—it’s open to anyone with debts over $1,000 and wraps up in about 9 to 21 months, covering everything you owe. However, you might have to let go of some assets, depending on provincial rules. Meanwhile, consumer proposals are a bit more of a long game. They’re tailored for folks with unsecured debts under $250,000 and stretch the repayments over up to 5 years. The upside? You typically get to keep your stuff, and creditors are likely to accept the proposal since they’ll get a better deal than if you went bankrupt.

Now, let’s chat credit scores—because those little numbers rule our lives, right? A bankruptcy hangs around like an old sweater, sticking to your credit report for 6 to 7 years after you wrap it up. Consumer proposals? They’re a tad less clingy, staying put for about 3 years after you’re done, or 5 years if you don’t complete it. Plus, bankruptcy requires continuous income talks—kind of like check-ins with a nosy neighbor—whereas consumer proposals let you steer clear of that hassle. As for costs, bankruptcy fees might change with your income, but consumer proposal fees blend into your debt deal.

In short, choosing between the two boils down to how much you owe, what assets you have, and your ability to pay. One thing’s for sure: whatever your situation, you’ve got options. Reach out via phone, text or live chat if you have any questions.

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

Bankruptcy and consumer proposals are two distinct options for dealing with unmanageable debt in Canada.

Bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act (BIA), where an individual declares that they cannot pay their debts. This results in the liquidation of their assets to repay creditors, and most debts are discharged after a specified period (sections 40-49 of the BIA).

In contrast, a consumer proposal is a formal offer to creditors to pay back a portion of what you owe over a set period, usually between 3 to 5 years (sections 50-61 of the BIA). It allows you to keep your assets while making manageable payments to your creditors, which they must accept in order for the proposal to be enacted.

The better option for you depends on your financial situation and goals. If you want to keep your assets and possibly pay less than what you owe, a consumer proposal is likely the preferable choice. If your debts are overwhelming and you have few assets, bankruptcy may offer a quicker resolution.

From: OSB Helper

Related Questions to Bankruptcy And Consumer Proposals

Here are the top 5 most frequently asked questions related to the difference between bankruptcy and a consumer proposal, based on common queries and current trends:

1. What are the key differences between a consumer proposal and bankruptcy?

A consumer proposal involves offering creditors a settlement amount to be paid over time, while bankruptcy involves surrendering non-exempt assets and potentially making surplus income payments.

2. How do consumer proposals and bankruptcy affect my assets?

In a consumer proposal, you generally keep your assets, but the offer must be more favorable than what creditors would receive in a bankruptcy; in bankruptcy, you may have to surrender certain assets depending on their value and provincial guidelines.

3. What is the impact on my credit score for a consumer proposal vs bankruptcy?

Both options negatively impact your credit score, but the effects of bankruptcy typically last longer than those of a consumer proposal.

4. How long does it take to complete a consumer proposal compared to bankruptcy?

A consumer proposal usually takes up to 5 years to complete, while bankruptcy typically lasts between 9 to 21 months.

5. What are the monthly payment differences between a consumer proposal and bankruptcy?

Consumer proposal payments are fixed and based on a negotiated settlement, while bankruptcy payments can vary based on your income and may include surplus income payments[1][5][3].

If you have a question about debt see our debt questions or ask your own debt related question.

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