What Is a Consumer Proposal and How Is It Different Than Bankruptcy?

For those with the most severe financial worries, the path ahead will offer two signposts: consumer proposals or bankruptcy. While these are both legal events, they provide different escape routes to debt stress.

In this article, Crowe MacKay & Company’s Licensed Insolvency Trustees outline the basics of a consumer proposal. This lesser-known debt tool can be a helpful and welcome alternative to those worrying about bankruptcy.

A Consumer Proposal: The Basics

A consumer proposal is a legal procedure. It falls under the Canadian Bankruptcy and Insolvency Act. This procedure is designed to help those facing overwhelming debt problems.

An individual with debt will create an agreement with a third party called a “Licensed Insolvency Trustee” (LIT). The agreement states that the individual will pay only a percentage of the debt. Alternatively, it will outline full debt repayment but over an extended period.

Bankruptcy Vs. a Consumer Proposal

While a consumer proposal is a type of debt relief, it’s not the same as bankruptcy. There are fundamental differences.

Bankruptcy involves surrendering your assets in exchange for debt relief. Furthermore, bankruptcy is viewed as a last resort. It’s there to help with the most significant and unmanageable debt problems.

In contrast, with a consumer proposal, individuals get to keep their assets and must repay a portion of the debt within an agreed period. Bankruptcy is generally more severe, and individuals that use this strategy sustain long-lasting effects.

The Consumer Proposal Application Process

When applying for a consumer proposal, the initial step is to consult a LIT. The LIT will assess the individual’s financial situation. After that, they’ll work to put together a reasonable offer to repay a percentage of the debt.

The next step is to file the proposal with the Office of the Superintendent of Bankruptcy. Following this, the creditors will review the submission and either accept or reject it. If the majority of the creditors agree, the individual is bound by the terms of that deal.

Your Financial Future: The Impact of a Consumer Proposal Compared to Bankruptcy

When an individual chooses a legal settlement for debt, they also face long-term implications. Both a consumer proposal and bankruptcy impact a person’s financial future.

Let’s first examine the implications of a consumer proposal. This settlement will stay on your credit report for three years following the final payment. That makes it harder to apply for new credit during that period.

The upside of a consumer proposal is that the individual has a set and manageable repayment plan with no additional interest accruing. That makes it easier to juggle the monthly repayment alongside the rest of a personal budget.

Bankruptcy has a more prolonged financial impact. It remains on a credit report for six years after discharge. Multiple bankruptcies will stay on the report for 14 years after receiving an Absolute Discharge.

That means individuals have a lengthy life period where new credit applications will be challenging. 

A Path to Long-Term Financial Freedom

Before making a decision about debt, it’s vital to know the nuances of a consumer proposal compared to bankruptcy. That knowledge will help secure the best solution for that individual.

If you are concerned about debt, contact Crowe MacKay & Company today and take the first step towards reclaiming your financial independence. We have over 60 years of experience and offer free initial consultations.

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This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice.

If you require corporate or personal Insolvency services, Crowe MacKay & Company provides custom solutions for clients, allowing them to live debt-free.

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Common Questions about Debt Relief

Our Licensed Insolvency Trustees are experienced and qualified to answer all your questions about personal and corporate debt. From identifying imminent financial trouble to providing commercial and personal debt relief options, we are committed to educating you so you feel confident and informed. Depending on your income, the amount of debt you have, your monthly financial commitments, and your future goals, we can recommend the best way forward and assist you with all legal and documentation processes.