Consumer Proposal vs Bankruptcy

With the economy in its current state, many Canadians find themselves in debt and do not know what resources are available to help them, restructure their debts and rebuild their credit. The two most popular resources available to debtors are the negotiation of a consumer proposal and the filing of a personal bankruptcy. Each of these options has different requirements, but both are designed to be a financial relief. Read on to be more aware:

Requirements: Which program is available for whom?

Bankruptcy is the traditional choice for those in need of quick financial relief. The main requirement is to have at least $ 1,000 in debt, with no maximum limit, and to be unable to make payments when due. On the other hand, a consumer proposal limits the amount you owe to $ 250,000, unless you have a mortgage, in which case it could be treated separately, and you must be able to repay some of your debts immediately after that the proposal be granted.

Another difference is that although most people who declare bankruptcy are granted this form of relief, there is no guarantee that your consumer proposal will be accepted since your creditors will determine if you grant it or not.

If you are eligible for both options, your best choice is to try to negotiate a proposal first, since it will not affect your credit history as much as a bankruptcy. If the consumer proposal is not granted, turn to the other option. In both cases, your decision should be based on enough research and consultation with a professional, so as not to fall into an agreement that penalizes you rather than helping you.

How much will it cost?

How much you will pay will depend on the option you have chosen. If your consumer proposal is accepted, you will have fixed monthly amounts that will remain the same until the full amount of the proposal is covered.

On the other hand, when you go bankrupt, your payments are variable, which means they can be different from one month to another, depending on your total income. In a word, the higher your income, the more your payment will be, while remaining proportionate to what you can actually pay. Because of this, when you go bankrupt, you must complete a monthly budget that includes your income and expenses, which will help determine your payment. You will also have to provide proof of income, so be prepared to attach copies of your pay stubs and receipts to your monthly budget documentation.

What about my property?

When you negotiate a consumer proposal and it is granted by your creditors, you must not give up your assets. This is one of the positive aspects of this type of debt restructuring because it allows you to keep your assets worthlessly earned without any loss. In contrast, when you go bankrupt, you will suffer the loss of your property and your assets must be returned, including the tax refunds and credits owing to you, in order to obtain the absolution of your debt. There are certain exemptions to which assets can be forgiven. This includes your clothes, furniture, and in some cases a vehicle deemed necessary for your work, but these conditions depending on the province in which you live, so be sure to contact a professional to determine what you can or cannot keep. Luxury items, such as yachts, are usually at the top of the list of assets that must be surrendered, as well as any inheritance received during the time you are bankrupt.

What will happen to my credit rating?

In either case, your credit rating will be negatively affected, due to your inability to pay off your debts without taking drastic action. The difference is how much each option will have on your side.

In the case of a consumer proposal, you will get a rating of R7, which is not very good but still indicates that you were ready to negotiate with your creditors and have been able to satisfy both parties. This will leave the door open for future credit offers and will take less time to be removed from your credit report.

When you go bankrupt, you receive an R9 rating, which is the worst credit rating you can have in Canada and will appear in your credit report for 7 years. Your credit rating will not affect the opening of a bank account, and no bank should refuse to do so for this reason. If this is the case, the bank is breaking the law and must be reported. The only aspect of your financial life that will be adversely affected by the bankruptcy could be your ability to obtain credit when you buy a house, a new vehicle, or to obtain a credit card. the duration on your personal report of your bad rating.


Trying to negotiate and restructure your debts can be hard for the parties involved, especially for the debtor, but with a little time and work, you will soon find that your stress level will be significantly reduced and you can continue your life as you do. it would normally, with a clean slate and a promising future.

Keep in mind that no matter which financial aid option you choose, you should always consult a professional who will be able to explain the nuances of each option, and help you determine which option is best for your situation. Consulting with a professional can also give you an advantage in negotiations, allowing you to reach a more favorable agreement that if you were acting on your own. Always do your research and check the laws that apply directly to your province, since the terms may vary from province to province. Above all, try to respect the final terms of your agreement as strictly as possible in order to avoid negative actions against you and your property.

Finally, once you are free from bankruptcy and your proposal and the burden of your debt eliminated or reduced significantly, many lenders will consider you an interesting candidate for a loan. Ask for a loan after bankruptcy.