Bankruptcy or a consumer proposal: what is the difference?
In short
Both are federal insolvency proceedings filed by a Licensed Insolvency Trustee. A consumer proposal repays a portion of what you owe over up to five years and lets you keep your assets. Bankruptcy discharges eligible debts sooner but involves surrendering assets above provincial exemption limits.
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What do you repay?
In a proposal you offer a portion of what you owe and make monthly payments toward it. In a bankruptcy you make payments based on your income and household size, and eligible unsecured debts are discharged at the end.
What happens to your assets?
A proposal generally lets you keep your assets, which is often the deciding factor for a homeowner. In a bankruptcy, assets above your province's exemption limits are surrendered to the trustee. Exemption limits differ by province.
Which is reported longer?
Both are reported to the credit bureaus. The reporting periods differ, and a second bankruptcy is reported longer than a first. A trustee can tell you exactly what each would mean on your own file.
Frequently asked questions
- Can I choose which one to file?
- You decide with the trustee, but eligibility depends on your circumstances. A consumer proposal requires enough regular income to fund the payments you offer, so it is not open to everyone.
- Is one of them cheaper?
- Costs in both are set by federal regulation rather than quoted by the trustee, and they depend on your income, assets and the amount offered. The first consultation is free, so ask for both figures before deciding.
- Do either stop collection calls?
- Filing either one triggers a stay of proceedings that stops most unsecured collection activity. That is a consequence of the filing itself, handled by the trustee, and not something any referral service can arrange.