David Sklar & Associates Inc.

Consumer Proposal & Bankruptcy Trustees
Serving the Greater Toronto Area

Consumer Proposals vs Bankruptcy – Which is Better?

When considering Consumer Proposal or Bankruptcy, keep in mind that everyone’s situation is different – and only a discussion with a Licensed Bankruptcy Trustee (who will review your current financials in detail) will be able to answer this question for your specific situation. Bankruptcy is the last and most severe debt removal option – and should not be taken before all other options have been explored.

Consumer Proposals and Personal Bankruptcies fall under the Bankruptcy and Insolvency Act. Each can only be filed by a Licensed Bankruptcy Trustee (such as David Sklar & Associates Inc.). The goals of both are to:

• offer relief to ‘honest but unfortunate debtors’ and enable them to get on with their lives;
• stop collection efforts and legal actions (including wage garnishment);
• release the debtor from their debt load; and
• offer training to avoid future debt problems.

With a Consumer Proposal, the debtor is normally able to keep all of their assets including their homes and cars. However, they must continue to make secure loan payments that may exist for those assets. Through a Bankruptcy Trustee, the debtor makes an agreement with his/her current unsecured creditors to pay off a portion of the outstanding unsecured debt over a set period of time (cannot be longer than 5 years). At the end of the time, if the debtor has honoured the agreement, he/she is released from the outstanding unsecured debts.

With a Bankruptcy, the debtor is allowed to keep some assets, but is frequently required to release major assets such as homes, which are in turn are settled by the Bankruptcy Trustee with the proceeds split out among the creditors. If the debtor has what is deemed to be Surplus Income they may then have to pay a portion of their income into their Bankruptcy Estate over a period of 21 months (for first-time bankrupts).

There are situations where individuals may be eligible to file Bankruptcy but ‘other factors’ persuade them to file a Consumer Proposal. For example:

• the person works in a profession that does not allow bankruptcy;
• the stigma of Bankruptcy is totally unacceptable to the debtor;
• there are assets that the debtor will not give up; or
• going into Bankruptcy may force a spouse into Bankruptcy too.

Whatever your situation, it is essential to review your unique case with a Licensed Bankruptcy Trustee.

There are other important differences between Consumer Proposals and Bankruptcy including:

Additional Income:

If during the Consumer Proposal process the debtor unexpectedly earns or receives money or assets over the amount declared in their proposal – the terms of their proposal agreement does not change.

If during Bankruptcy, the bankrupt unexpectedly earns or receives money or assets over the amount declared in their Bankruptcy – then the amount they are required to pay into their Bankruptcy may increase and the length of time they spend in Bankruptcy may also be increased.

Future Employment:

Where a job application form asks if a person has ever declared Bankruptcy (usually where an employee needs to be bonded) anyone who has declared Bankruptcy must answer yes. Bankruptcy may hurt your chances of being bonded.

A Consumer Proposal is not considered the same as a Bankruptcy on application forms.

Credit Report:

A first Bankruptcy will appear on your Credit Report for six to seven years (in Ontario) after your final discharge from the Bankruptcy (14 years for a second Bankruptcy).

A Consumer Proposal will appear on your Credit Report for three years after completion.

Summary

There are significant differences between Bankruptcies and Consumer Proposals. Determining which is your best option can only be done with the assistance of a Licensed Bankruptcy Trustee. If you live in the Greater Toronto Area, are contemplating filing a Consumer Proposal or Bankruptcy, and would like to speak with a Trustee - call David Sklar & Associates Inc. at 416-498-9200 to book a free initial consultation.