Why a Consumer Proposal has become the popular debt relief option. 

When considering your options to get ahead of personal debt, the options you are faced with may feel limited and intimidating. Some believe Bankruptcy may be the only option for them. However, Consumer Proposals are a popular alternative that can help alleviate debt as well, proving to be just as effective as a Bankruptcy. 

A consumer proposal is an offer made to creditors to pay a percentage of what you owe over a specific period of time, not exceeding 60 months. Like Bankruptcy, they are not suitable for every situation, but a thorough consultation can help you decide what option is best for you. In recent years, Consumer Proposals have become the more popular of the two options, for several reasons:

1. Financial education – With information readily available, whether from the internet, friends, family, or a Licensed Insolvency Trustee, people are more informed now than ever on their debt relief options. 

2. Certainty of amount to repay – In a Consumer Proposal, creditors vote on your offer to settle, so the amount to repay is fixed upon acceptance. This is unlike a Bankruptcy where the payments, and potentially the duration, can increase if your household income increases above government guidelines.

3. Credit Reports – The record of a Consumer Proposal drops off your credit report sooner than a Bankruptcy. A Consumer Proposal is on your credit report for 3 years after the completion of the proposal, or 6 years from the date of filing; whichever date comes first. A first time Bankruptcy is on your credit report for 6-7 years after discharge, depending on whether you are looking at Equifax or TransUnion. 

4. Tax returns – During your Consumer Proposal, you are able to file your own tax return and are entitled to keep any tax refunds you may receive. This is different from Bankruptcy where the Trustee will file your tax return, and any tax refunds you receive will be sent to the trustee for the benefit of your creditors. 

5. Keep 100% of any future windfalls – A windfall is when you receive an unexpected sum of money. This could include bonuses, overtime, retroactive pay, inheritance, lottery winnings, the sale of an asset, and/or any higher income associated with a new/second job or the start of a business. If you receive any windfalls during your Consumer Proposal, they are entirely yours to keep. In a Bankruptcy, windfalls have to be reported to the Trustee, and depending on the windfall, they may change the payments/duration, or be sent to the trustee for the benefit of the creditors. 

6. Become or continue to act as the director of a corporation – If you have plans to be the director or a corporation, or already are the director, there is no implications if you file a Consumer Proposal. If filing a Bankruptcy, you cannot become or act as the director of a corporation. 

7. Continue to be bondable – Employers typically prefer their potential hires to be bondable. If you file a Consumer Proposal, you will continue to be bondable. If you file a Bankruptcy, you are not considered bondable until you are discharged. 

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.

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, and whether a person has realizable assets (ex. Equity in a house, land or investment).

To decide if a Consumer Proposal is the right decision for your financial situation, its important to consult with a Licensed Insolvency Trustee.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.