What are the differences
between bankruptcy and
a consumer proposal?

Bankruptcy and a consumer proposal are two legal options to settle your debts, including taxes, credit cards, late payments or personal loans. There are advantages and disadvantages in each case that you need to know about so you can make the right decision when the time comes.

First, let’s take a look at each one.

Personal bankruptcy

When you file for bankruptcy, you eliminate most of your debts. There are several steps in a bankruptcy. You have to call on a licensed insolvency trustee or a bankruptcy trustee like Raymond Chabot Inc. to help you file for bankruptcy. The trustee will handle everything, starting with dealing with your creditors.

• The trustee will notify your creditors of the process and they will immediately stop calling and writing to you since they will have to communicate only with your trustee.
• The trustee with seize and sell your assets that are not exempt from seizure and distribute the funds from the sale to your creditors.
• A portion of your salary may also be withheld to pay your debts.
• You will be discharged from your debts generally between 9 and 21 months from the date of your first bankruptcy.

If you have any questions about bankruptcy and its consequences, you can go to the frequently asked questions on our site.

Consumer proposal

A consumer proposal (or proposal to creditors) is an alternative to bankruptcy. It consists in negotiating a debt repayment with your creditors without filing for bankruptcy. Your licensed insolvency trustee will be responsible for preparing the agreement and will guide you during the process.

With a consumer proposal, you can, among others :

• Repay only a portion of your debts;
• Pay a lower amount each month.

What they have in common

Bankruptcy and a consumer proposal have several things in common, including :

• Allowing you to repay and discharge your debts quickly (maximum of five years for a consumer proposal);
• Protecting you from legal proceedings from your creditors, such as salary seizure and collection measures;
• Stopping the accrual of interest on your debts;
• Protecting you from a bank account freeze;
• Releasing you from your tax debts (contrary to a persistent myth that says otherwise).

How they differ

As we have seen, a consumer proposal is a settlement agreement between you and your creditors, while personal bankruptcy helps you discharge your debts by disposing of some of your assets.

If your budget permits, you should consider a consumer proposal.

• You can keep your assets, RRSP and life insurance (under a bankruptcy, you have to sell certain essential assets even if some are exempt from seizure. Additionally, your RRSP contributions in the past 12 months are not protected under a bankruptcy);
• It stays on your credit file for a shorter period of time than with a bankruptcy (five years vs. six or seven years);
• You can make regular, equal monthly payments, whereas, under a bankruptcy, your payments vary according to your income.

In any event, only a licensed insolvency trustee will have the skills and know-how to help guide you through the process. This will give you peace of mind and allow you to look forward to the future with renewed confidence. You should know that if you opt for a consumer proposal and your finances no longer allow you to honour the terms, you can file for bankruptcy at any time.

Do you have a lot of debt? Don’t hesitate to contact one of our licensed insolvency trustees who can guide you each step of the way.