Consumer Proposals are becoming the preferred choice for debt relief.

Back in 2011, a total of 122,999 Canadians seeking debt relief filed either a Bankruptcy or a Proposal.  Of those 122,999 filings, 77,993 (63.4%) were Bankruptcy filings while the remaining 45,006 were Proposal filings (36.6%).  In 2019, a total of 137,718 Canadians seeking debt relief filed either a Bankruptcy or a Proposal.  Of those 137,718 filings, 54,409 (39.7%) were Bankruptcy filings, while the largest share, 82,769 (60.3%) were Proposal filings.

For 2020, the trend continued however, filings as a whole during the first year of the pandemic dropped substantially.  In 2020, a total of 96,458 Canadians seeking debt relief filed either a Bankruptcy or a Proposal.  Of those 96,458 filings, 32,880 (34.1%) filed Bankruptcy while the remainder, 63,578 (65.9%) filed a Proposal.

It is impossible to generalize and say a Bankruptcy is better than a Proposal or vise versa.  Whether a person should file one or the other is situation specific and depends on a number of factors such as:

• Current income
• Future income prospects
• Family size
• Debt-mix
• Employed or self-employed
• Existence of realizable assets (ex. Equity in a house, land, or investment)
• Other pertinent factors specific to the individuals situation

The filing of a Consumer Proposal, which is essentially an offer to compromise total debt owing for a sum you can actually afford to repay, provides some advantages that do not apply in a Bankruptcy:

1. Certainty of amount to repay — in a proposal, creditors vote on your offer to settle so the amount to repay is fixed upon acceptance, whereas in a Bankruptcy, the amount to repay can fluctuate, primarily due to income fluctuations.
2. Keep 100% of windfalls — after a proposal has been accepted, you can keep 100% of future windfalls such as inheritance, lottery or proceeds from the sale of an asset.
3. Keep all additional income received — after a proposal has been accepted, extra income from pay raises, over-time, bonuses, retro-pay, second job, or a new business are yours to keep and use at your discretion.
4. Keep tax refunds for the year of filing — in a proposal, you file your own tax return for the year of filing and keep any refunds for use at your discretion (provided you did not owe CRA personal tax debt prior to filing, otherwise CRA has the right of off-set).
5. Become or continue to act as the director of a corporation — if you file Bankruptcy, you cannot become or continue to act as the director of a corporation until after you have been discharged.
6. Continue to be bondable — a proposal filing does not affect your ability to be bonded.
7. Credit Reports — in New Brunswick, the record of a Consumer Proposal filing comes off your credit report after 3 years from the date of completion or 6 years from the initial date of filing; whichever is sooner.  In New Brunswick, the record of a first time Bankruptcy remains on your Equifax credit report for 6 years from the date of discharge or 7 years from the date of discharge with TransUnion.
8. Satisfy requirements for membership to professional organizations — if your job is subject to regulation on behalf of a licensing body (ex. Lawyers, accountants, brokers, etc.) the filing of a Bankruptcy may result in restrictions being added to your license or your license being withheld.  If applicable, it is recommended that you check with your professional organization before the filing of a Bankruptcy or a Proposal.

When it comes to deciding whether a Bankruptcy or a Consumer Proposal might be right for you, our goal at Jaime Johnson & Associates, is to not sway your decision one way or another.  We will provide you with as much information as possible about all of your options for debt relief so that you are confident you are making an informed decision about how best to proceed.

For a free consultation, please email jaime@tackledebt.ca or you can call or text (506)645-1814.