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What is the difference between a Consumer Proposal & Bankruptcy?

There is much confusion today regarding the difference between a consumer proposal and a bankruptcy.

They both fall under the Bankruptcy and Insolvency Act and allow you to extinguish unsecured debts but there are some very important differences as illustrated below:

Consumer Proposal:

A consumer proposal is an offer you can make to your creditors to pay off the debt as an interest free payment over a period of up to 5 years. Very often your creditors will accept less than what you own depending on your financial circumstances. Usually you will need to offer more than what the creditors would have otherwise received had you filed for bankruptcy. When you file a consumer proposal with a trustee in bankruptcy your assets are fully protected from the creditors, interest stops on your unsecured debts and creditors calls stop.

Consumer proposals can eliminate the debts such as credit cards, personal loans & lines of credit, over drafts, Tax & HST, student loans more than 7 years old, medical service plan and mortgage shortfalls.

Bankruptcy:

When you file for bankruptcy your assets are not protected from the creditors and may be seized by a trustee in bankruptcy in order to pay off your debts.  Also, a portion of your income may be taken each month by the trustee in order to pay your creditors.

Unlike consumer proposal where the agreed monthly payments are fixed, in a bankruptcy your income is monitored and payments to your creditors are increased as your income increased. Also, if you win or inherit money during the bankruptcy period or receive a tax refund then the trustee will take this to pay your creditors. These monies would be protected in a consumer proposal.

In summary, a consumer proposal allows consumers to make an offer to their creditors to pay back what they owe through a fixed, interest free, monthly payment while protecting their assets.

Article courtesy from Peter Temple, Debt Consultant from 4 Pillars Consulting

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