In 2009, bankruptcy statistics showed a peak in the number of bankruptcies. Since then, there has been a large decrease in new bankruptcies, partly due to the increased willingness of Canadians filing consumer proposals rather than a bankruptcy. Consumer proposals were developed by the Canadian government as a way to help people from losing assets while getting out of debt. That is why consumer proposals have increased in popularity among those with larger amounts of consumer debt.
There are many similarities between a consumer proposal and bankruptcy. It still impacts your credit score. Like with bankruptcy, consumers often decide to file a consumer proposal once they no longer qualify for other types of debt relief, including debt consolidation or consumer credit counselling. There are good reasons behind having a good understanding of the differences between bankruptcy and consumer proposal to help make the best choice for your situation.
What Is Your Total Debt Amount?
There are debt limitations to qualify for a consumer proposal. Your debt, when filing as an individual must be greater than $1,000, but less than $250,000. If you’re filing jointly the maximum amount goes to $500,000. If your debt is more than this, you will not qualify for a consumer proposal, and bankruptcy may be the only option.
Are You Able To Make Payments?
Being able to make the payments is an important thing to consider. Are you able to afford the make some sort of payment towards your debt each month, without missing payments? If you are unable to make payments every month, bankruptcy is the only option left.
How Quick Do You Want to Be Free of Debt?
There are many who file bankruptcy simply because they see it as the fastest way out of debt. First-time bankruptcy filers are eligible to receive automatic bankruptcy discharge after just nine months. Meanwhile, a consumer proposal is not likely to have your debt-free in nine months, as a payment plan is set up for larger debt amounts. Although, many who file for bankruptcy are not able to get automatic discharge, therefore the time between filing for bankruptcy and getting debt discharged can be many years.
Do You Want To Surrender Assets?
In addition to damaging your credit, the biggest disadvantage to bankruptcy is being forced to hand over almost any asset you may have to the trustee to distribute to creditors. Although some exeptions exist, these only include basic necessities or tools for employment. You are required to surrender most personal possessions, including your jewelry, even your home.
Furthermore, the bankruptcy will set a cap on the amount you’re able to earn as you’re under bankruptcy protection. If your income goes $200 over the earnings limit set by the bankruptcy superintendent, you will be required to make a surplus payment every month your income is higher. This required payment extends your time in bankruptcy, which could cause you to spend more before discharges go into effect than if you had a consumer proposal payment.
Consumer proposals do have a negative impact on your credit report, and can last for years like bankruptcy, you are not required to surrender assets to the trustee, long as you’re able to make scheduled payments on time as agreed between you and the creditors. Furthermore, the consumer proposal payment amount never changes, even if your income increases before the repayment period is over.
Consumer Proposal or Filing Bankruptcy?
If you have no other options and you qualify for a consumer proposal, it is usually a better choice than bankruptcy. If you’re unsure if you qualify for other types of debt relief, fill out our debt relief form to have an adviser help determine what is best for you.
get your free savings Estimate