Consumer Proposals vs Personal Bankruptcy

How is a Consumer Proposal Different from a bankruptcy?

A Bankruptcy will:

• Be for a legislated period of time and cannot be shortened or changed (generally).  The length of time you are in bankrupt will increase if you have Surplus Income (see below) or if you have been bankrupt before.
• Cost more if you make more – over the period of time you are bankrupt, you must report each month what your family earns – this results in a payment obligation to the LIT based on your monthly earnings – see Surplus Income Calculation.  The more you earn over the entire bankruptcy period, the higher your surplus income payable will be.
• Result in assets you acquire during the bankruptcy period possibly being seized by the LIT.  If you are in bankruptcy and acquire assets (like an inheritance or lottery winnings) 100% of these assets can be seized by the LIT for your creditors.
• Possibly negatively affect your standing with professional associations, your ability to be bonded, and possibly your security clearance if you are in the military.  Always check with your professional body before file a bankruptcy
• Result in your income tax refunds in the year of bankruptcy, or any prior years, being paid directly to the LIT for the benefit of your creditors.
• Results is an R9 report on your credit score (seen as the worst) for 6 years once your bankruptcy is completed (for a first-time bankruptcy)

A Consumer Proposal:

• Is a negotiated settlement with your creditors.  Your consumer proposal will always offer “a better return” to your creditors than they would get in a bankruptcy.
• The maximum period for a proposal is 5 years – but you can always pay it off more quickly if you desire, or offer a shorter pay period.  In this way, a proposal can be a bit more flexible based on your earning abilities.
• Once approved, your payments will never increase.  Even if your income goes up, or you receive an inheritance or win the lottery – you only have to pay the agreed amount under the proposal.  Once paid, the balance of the debt is discharged. 
• Will not require monthly reporting to your LIT.  With a Consumer Proposal you do not have to report your family earnings to the LIT monthly.  The offer to creditors will only look at your current earnings, not your future earnings (or future assets like inheritance or increases in your property values)
• Will often not have negative affects on your professional licensing bodies – however, you should always check with your professional or licensing body before filing for either alternative.
• Will result Income tax refunds in the pre-filing period being paid to you directly – not your LIT.
• Results in an R7 on your credit report for 3 years after the proposal is fully completed.