How to Choose Between a Consumer Proposal and Bankruptcy

  • By Jillian Taylor-Mancusi


Credit card and other consumer debts can pile up quickly. When they become too much to handle, you may need professional help. The Bankruptcy and Insolvency Act provides two ways you can handle overwhelming debt, but how do you choose between a consumer proposal and bankruptcy?

Learning about each option will help you make an informed choice. Use this fast and easy-to-understand primer to get acquainted with each legal remedy.

Consumer Proposal

A consumer proposal is exactly that—a proposal that you (the consumer) make to your creditors that lets you settle your debts for less than you owe. With the help of a licensed insolvency trustee, you negotiate new and affordable terms for each of your debts. Your proposal may include negotiating a lower balance, reducing or waiving fees and interest, or a combination.

If your proposal is accepted by your creditors, you will be required to make monthly or quarterly payments. You have up to five years to pay off your proposal. Aside from making regular payments, you must also meet with your licensed insolvency trustee for two counselling sessions. Your creditors are required to stop collection efforts and cannot pursue any legal remedies against you such as a lien or wage garnishment.

A consumer proposal is a good choice for you if you:

  • want to stop aggressive collection action
  • have a steady job and can afford to make regular payments
  • don’t want to lose your possessions to bankruptcy.

If you are trying to decide how to choose between a consumer proposal and bankruptcy, keep in mind that a proposal is less damaging to your credit report.

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Bankruptcy is the other option you may be familiar with. While it often gets a bad rap, it can be a welcome relief from too much debt. The Bankruptcy and Insolvency Act (BIA) makes it possible for most of your unsecured debt to be discharged, or forgiven. In turn, you must turn over your possessions to a licensed insolvency trustee so that they can be sold. Profits from the sale of your assets are used to make partial payment to your creditors.

Each province has bankruptcy exemptions that allow you to keep some of your possessions. Your licensed insolvency trustee is the best person to talk to about what assets you will be able to keep.

Bankruptcy might be the best choice for you if you:

  • lost your job or suffered another financial emergency, such as a serious health problem or divorce
  • can no longer afford your monthly debt payments
  • have creditors who are threatening you with legal action.

In addition to forfeiting some of your assets, you must attend two counselling sessions with your licensed insolvency trustee. If you make more than a pre-determined amount, you must also make surplus income payments.

Because both options can be confusing, it’s best to consult with a licensed insolvency trustee. They will answer your questions and help you decide how to choose between a consumer proposal and bankruptcy.

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