How is a Consumer Proposal a Viable Alternative to Bankruptcy in Canada
Posted on: April 1, 2025Posted in Bankruptcy, Consumer Proposals | Comments Off on How is a Consumer Proposal a Viable Alternative to Bankruptcy in Canada
Are you having financial difficulties and looking for an alternative to bankruptcy? A consumer proposal offers a way to resolve debt problems while avoiding the more severe consequences of declaring bankruptcy.
In a Consumer Proposal you work with a Licensed Insolvency Trustee to propose a fair settlement to creditors, based on what you can afford to pay. The flexibility it offers in allowing you to manage debt without significantly disrupting your life is what primarily makes it a popular option for debt relief. In fact, between 55% and 75% of all insolvency filings nowadays are consumer proposals.
In addition to this, there are other reasons why many people consider a Consumer Proposal a better choice:
Shorter Time Credit Impact
A Consumer Proposal has a lesser impact on your credit score because the negative effects last for a shorter period compared to bankruptcy.
An R7 Rating stays on your credit report for 3 years after completion of the proposal, or 6 years from the date of filing, whichever comes first. On the other hand, in a bankruptcy, an R9 rating stays on your credit report for 6 years after discharge. This shorter credit impact allows you to rebuild your flagging credit score sooner than after bankruptcy, which can mean a quicker financial recovery.
No Seizure of Assets
In bankruptcy, you will need to surrender many of your assets to your trustee who will take care of selling them and, following that, distribute the proceeds to repay creditors. In a Consumer Proposal, however, you can keep your house, car, investments, and personal belongings while still negotiating a repayment plan as long as you can continue making regular payments for them as they become due.
Manageable Debt Repayment
In a Consumer Proposal you pay only a proportion to what you can pay of your total debt, which can be much less than what you owe. The amount that creditors accept may be as little as 10% or 20% of what you owe, making it a more affordable option. In addition, the terms of the repayment plan are more manageable than what your regular payments are because you can arrange to make monthly payments over a period of 3 to 5 years.
Legal Protection from Creditors
As soon as a Consumer Proposal is filed, creditors are legally prevented from continuing collection efforts, including garnishments, lawsuits, and harassing calls. This provides immediate relief from the stress of dealing with debt collectors. You can get the same legal protection in a bankruptcy, but the personal and financial consequences of filing are more severe.
Debt Consolidation Without Borrowing
A Consumer Proposal consolidates all unsecured debts (credit card debt, personal loans, etc.) into a legal agreement that allows you to make one fixed monthly payment over a set period of time. You don’t need to take on a new loan to pay off your debt, which you will have to do in a traditional debt consolidation loan.
Eligibility and Accessibility
In a bankruptcy, you need to owe more than $1,000 and prove that you are insolvent to be eligible. A Consumer Proposal is more accessible in that you don’t need to show that you’re completely insolvent or hopelessly in debt. If you have a high amount of unsecured debt but need more time to pay them back, you can propose a realistic repayment plan to your creditors through a Licensed Insolvency Trustee. All you need is for the majority of creditors to agree to the proposal for it to be legally binding.
When to Consider a Consumer Proposal Over Bankruptcy
- You can afford to make payments – If you’re capable of making regular payments towards a reduced debt settlement but can’t pay everything in full, a Consumer Proposal may be the better option.
- You have assets you wish to protect – If you own assets like a home or a car that you want to keep, a Consumer Proposal will likely be a better alternative since bankruptcy may require you to surrender these assets.
For many reasons, a Consumer Proposal is a viable and less disruptive alternative to bankruptcy. It enables you to keep your assets, reduce your debts, and avoid the harsh consequences associated with bankruptcy, all while allowing you to achieve debt relief in a manageable way. However, each person’s financial situation is unique, so it’s important to consult with a licensed insolvency trustee who can help you determine the best solution to manage debt for your specific circumstances.
Call us at 1-888-545-5365 for a free consultation or book an appointment here.
