Bankruptcy statistics indicate that since a peak number of bankruptcy filings in 2009, the rate of new bankruptcies has decreased significantly. Part of this must be credited to Canadians’ increasing willingness to file consumer proposals instead of bankruptcy protection. Established by the Canadian government to give consumers a way out of debt without losing their assets, the consumer proposal has been a popular way for individuals with a large sum of consumer debt to finally be relieved of their burden.
The consumer proposal is similar to bankruptcy in several ways, including its effect on your credit. Moreover, since individuals with large debt burdens routinely turn to a consumer proposal or bankruptcy after they find that they are not good candidates for other debt relief options such as consumer credit counselling or debt consolidation, it is good to have an understanding as to why one might choose a consumer proposal over bankruptcy or vice versa. Armed with this information, you can make a better choice as to which option is best for you.
How Much Is Your Total Debt?
A consumer proposal has maximum debt levels that set a limit on how much you can include under your proposal. You will no longer qualify for a consumer proposal if you owe more than $250,000 if you are filing as a single individual or $500,000 if you are filing jointly.
Can You Make Any Payments on Your Debt?
A consumer proposal is only a good choice for you if you can afford to make some of your payments on your debt every month. If you are completely unable to make any of your minimum debt payments, bankruptcy is your only option.
When Do You Want to Be Debt Free?
Many Canadians choose bankruptcy because they believe it is the quickest way to get out of debt. After all, first-time filers for bankruptcy are eligible for an automatic bankruptcy discharge after nine months. Because the consumer proposal sets up a payment plan for a large amount of debt, you are unlikely to be done with the proposal in nine months or less. It should be noted, however, that many people do not get the automatic discharge in bankruptcy, which can extend the length of time between bankruptcy filing and discharge by several years.
Are You Willing to Give Up Your Assets?
The biggest disadvantage in bankruptcy is that you will be forced to surrender most of your assets to your trustee for distribution to your creditors. There are some exemptions that allow you to keep basic necessities and tools that you need for your employment. Still, you will give up many of your personal possessions, including property such as a home.
Bankruptcy also sets a cap on how much you are allowed to earn while you are in bankruptcy protection. Once you file for bankruptcy, you will be required to make surplus monthly income payments if your income is $200 greater than the limit on earnings set by the superintendent of bankruptcy. Having to make these payments will extend the length of time you are in bankruptcy, forcing you to spend more by the time your bankruptcy is discharged than you might have to spend on a consumer proposal.
Though a consumer proposal can damage your credit rating for as long as a bankruptcy does, you do not have to surrender any assets to your trustee as long as you are current on your payments as outlined in the agreement between you and your creditors. Moreover, the payment amount fixed by the consumer proposal never changes. Even if your income increases during the repayment period, your monthly consumer proposal payments will remain level.
Consumer Proposal or Bankruptcy?
If you can manage it, a consumer proposal is a better choice than bankruptcy for most people, and other debt relief options are even less damaging if you can qualify for them. Fill out the Canadian debt relief form and find out which option is your best choice.