Consumer Proposal Versus Bankruptcy – What is the Difference?
What’s the difference between a consumer proposal versus personal bankruptcy? Although both a consumer proposal and bankruptcy are proceedings under the Bankruptcy and Insolvency Act, they differ in the following ways:
Consumer Proposal Vs Bankruptcy – Effect on Assets
In a bankruptcy, your assets would become property of the bankruptcy estate to be liquidated by your Licensed Insolvency Trustee (“LIT”). There are many important exceptions to this general rule depending on the province in which you reside. For example, in Ontario, the following assets wouldn’t be affected:
- Household furnishings and appliances up to $13,150
- Your principal residence is exempt from seizure IF the equity in your home does not exceed $10,000. If the equity does exceed $10,000 then your principal residence is subject to seizure and sale
- All necessary clothing
- Tools of the trade up to $11,300
- A vehicle valued up to $6,600
- Other special exemptions for farmers
- Certain life insurance policies and certain registered retirement savings plans and registered retirement income funds
Any asset not in this list would have to be liquidated by the LIT for the benefit of the creditors in your bankruptcy estate.
On the other hand, a consumer proposal doesn’t affect your assets. Therefore, if you’re in financial difficulty but have significant assets you want to protect, a consumer proposal would be an ideal alternative to personal bankruptcy.
Effect on Income
During your bankruptcy, you may be required to pay a portion of your monthly net income to your LIT depending on the level of your income and the number of people you support in your household. Moreover, as your income increases during your bankruptcy, the more you’ll have to pay to your LIT. This is called surplus income.
On the other hand, once your consumer proposal has been accepted by your creditors, you’ll be paying a fixed monthly proposal payment to your LIT. This means that during your proposal, you can earn as much income as you want – so long as you continue making your monthly proposal payment, that extra income is yours to keep.
Effect on Your Credit
If you are first-time bankrupt, a bankruptcy will stay on your record as follows:
Generally, both Equifax and TransUnion remove a bankruptcy from your credit report 6 years after the date you’re discharged.
TransUnion removes a bankruptcy from your credit report 7 years after you’re discharged in the following provinces:
Newfoundland and Labrador
Prince Edward Island
And if you declare bankruptcy more than once, then the bankruptcies will appear on your credit report for 14 years.
On the other hand, in the case of a consumer proposal:
Equifax removes a consumer proposal from your credit report 3 years after you’ve paid off all of the debts included in the proposal.
TransUnion removes a consumer proposal from your credit report either:
3 years after you’ve paid off all of the debts included in the proposal, or
6 years after you sign the proposal (whichever is sooner)
What this means – the more quickly you pay your consumer proposal in full, the more quickly you can remove a record of your proposal from your credit file. In contrast, if you file bankruptcy, a record of that event stays on your credit file for a fixed period of time (i.e., 7 or 14 years).
So if you wish to rebuild your credit quickly after dealing with your debts, a consumer proposal will give you a distinct advantage.
If you want to work with a Trustee who will give you confidence and peace of mind that your consumer proposal is being dealt with in a professional manner, look no further.
Reviews of Our Services
Victor was quick to contact me and the consistent contact was amazing. Victor is really passionate about listening to my needs and it showed as his service with me was nothing short of an amazing experience. He went out of his way to meet on my sched and his attention to detail is exceptional. If yo
Victor and his team (Mary) were always extraordinarily prompt with their responses to any inquiries and went out of their way to respond to questions in detail. They were extremely helpful at all times, even after my Proposal was completed. VIctor is an excellent advocate for his client's needs and
Victor and his team were amazing. Treated us with the upmost professionalism. Answered all our questions, took care of everything and turned an unfortunate situation and made it much less stressful. I highly recommend Fong and Partners. Thank you all for your support through the process.
Working with Victor Fong was great. We just finished our consumer proposal a week ago and the entire process was quite easy. Mary was amazing at answering all my questions and accommodating me when I had any questions or concerns. Her response time was impeccable. Our initial meeting with Victor wa
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