Consumer Proposal vs. Bankruptcy

Consumer Proposal vs. Bankruptcy

by | Sep 1, 2021 | Financial Institution

Here at Debt Review, one of the most frequent questions we get asked is what is the difference between a Consumer Proposal and a Bankruptcy? Whilst both programs assist with debt relief and provide legal protection, they do have huge differences.

When a consumer files for bankruptcy they must surrender their assets to the creditors in exchange of the debt owing. Whereas in a consumer proposal is a legal settlement agreement that allows the consumer to keep your assets.

What is a consumer proposal?
A consumer proposal is a formal agreement between a consumer and their creditors. The consumer’s legal representative negotiates the terms of the debt repayment. The agreement states that you will pay a portion or all of your debt at a reduced rate over a specific period of time – usually 60 months.

Within this agreement the consumer is provided many benefits such as protection of their assets and income(s). In addition to this the consumer is provided a 0% interest on all debts.

What is a bankruptcy?
A bankruptcy is a legal procedure that relieves the consumer of all their debts. The legal representative creates a claim for bankruptcy, by doing this the consumers creditors will take control over their assets, investigate the consumers affairs, and monitor the progress of the bankruptcy.

Whilst being in a bankruptcy the consumer must attend two counseling sessions. File monthly reports on their income and expenses— typically within a bankruptcy the length of the term will be 9 or 21 months.

Why is a consumer proposal better than a bankruptcy?
There are many reasons as to why a consumer proposal is better than a bankruptcy. Although every situation is different, here are a couple reasons why a consumer proposal is better.

1. Depending on your debt level a bankruptcy can be very expensive. This is prominently based on your income and asset value. If you’re expecting to have a higher income then your payments will increase.

2. In a consumer proposal your income is protected. If you’re expecting to get a tax refund you’re legally protected and will be allowed to receive this benefit.

3. Whilst being in a consumer proposal the terms are negotiated up front. Therefore no hidden or additional costs to the consumer.

4. A consumer proposal is proactive – in the sense that not only is the consumer decreasing their debt level through the program but also rebuilding their credit score between 3 to 5 points on a monthly basis.

5. You are granted an open to pay agreement that allows you to make payments that will further allow you to complete the program that much faster.

Between the two solutions, a consumer proposal will have a lesser effect on the consumer’s credit score. However, depending on the situation, bankruptcy could be more suitable in some cases.

Reach out to us here at Debt Review to complete an assessment and see which program you would qualify for – our representatives will ensure to get you the lowest pay back amount.

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