Toronto Licensed Insolvency Trustees Who Speak Your Language

Consumer Proposal vs. Personal Bankruptcy in Toronto and Surrounding Areas

At some point or another, you may face serious challenges with your finances, enough to seek out professional advice. Between paying rent or a mortgage, a car lease, and credit card debt, dealing with debt can seem insurmountable. Perhaps you have reached a point where you cannot make a plan that will help you pay off your debts, and are unable to make your minimum payments. You may want to know the pros and cons about your available options.

AT A GLANCE: COMPARING PERSONAL BANKRUPTCY & CONSUMER PROPOSALS

PERSONAL BANKRUPTCY

May Be Preferable If You:

No Equity

$1000 or more

No regular source or unemployed

R9 for 6 years

Varies based on income

CONSUMER PROPOSAL

MAY BE PREFERABLE IF YOU:

Some Equity

Any

Steady income

R7 for 3 years

Maximum 5 years

When is a CONSUMER PROPOSAL Preferable to a BANKRUPTCY?

A consumer proposal is often preferable to a bankruptcy in a situation:

  • If you have a steady income or are expecting your income to increase in the near future;
  • If you are still able to make some amount of regular payment; and/or
  • If your debt is not excessive (i.e., less than $250,000 in unsecured debt, excluding mortgage debt). 


While a consumer proposal will not clear out your debt entirely, creditors generally agree to erase a substantial portion of the debt in exchange for an agreement to make payments at regular installments over a set period, not exceeding 5 years.

Further, with a consumer proposal, your assets will not be subject to seizure and sale, as they may be in a bankruptcy. Your house will not be impacted by a consumer proposal, regardless of its value, the amount owing on your mortgage and your net equity in the home.


When is a Bankruptcy Preferable to a Consumer Proposal?

If you do not have a regular income, or have lost your job, your creditors may not accept a consumer proposal. While a bankruptcy is rarely preferable to a consumer proposal, some potential advantages of declaring bankruptcy are:

  • If you wish to completely absolve yourself of unsecured debts; and/or
  • If you wish to be absolved of your debts in a reasonably short time frame;


Filing for personal bankruptcy allows you to restart on new footing, which may have an appeal if your debts are simply too large to manage, and you cannot propose to pay any significant portion of it soon.

Further, although bankruptcy proceedings may be complex, a first time bankruptcy generally lasts only 9 months and the costs are relatively minimal. 


Effects on Your Credit Rating

Your credit rating will be affected by both a bankruptcy and a consumer proposal. However, the effect of a consumer proposal on your credit rating will be softer than the effect of a bankruptcy.

During your consumer proposal, you will have the same credit rating as you would have during a bankruptcy. However, upon completion of your consumer proposal, your credit rating immediately gets upgraded from a R9 to a R7. Three years after the competition of your consumer proposal, the proposal will come off your credit report completely.

In a bankruptcy situation, you will receive a R9 rating on your credit score, which is the worst rating possible. The R9 rating will stay on your credit score for 6 years after your date of discharge from the bankruptcy.

While each situation is unique, it’s best to speak to a licensed insolvency trustee to discuss the best option in your circumstances.

To discuss a consumer proposal or bankruptcy in Barrie, Brampton, Brantford, Hamilton, Markham, North York, Oshawa, PickeringSt. Catharines, Toronto with one of our licensed insolvency trustees, call us today. Contact Harris & Partners Inc. at 1-800-268-8093.

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