Is a consumer proposal the same as bankruptcy?

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No, a consumer proposal isn’t the same as bankruptcy. Both offer relief from overwhelming debt, but they differ significantly. A consumer proposal lets you negotiate to repay part of what you owe while keeping your assets, whereas bankruptcy usually involves losing assets to clear your debts. Consumer proposals affect credit less harshly but can fall through if payments aren’t made. Questions? Reach out via phone, text, or live chat!

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Consumer Proposal Question

Is a consumer proposal the same as bankruptcy? I want to know if these two options are the same or if they have different consequences. It’s hard to tell the difference.

From: Anonymous Question
Location: Sudbury, Ontario (ON)
Category: consumer proposal

Consumer Proposal Answer

Nope, a consumer proposal isn’t the same thing as declaring bankruptcy. While both options are there to help you manage overwhelming debt under Canadian law, they serve different roles and come with their own sets of steps and fallout. A consumer proposal lets you negotiate to pay back a portion of what you owe. Better yet, you can keep your stuff! But with bankruptcy, you usually need to give up your assets to wipe the slate clean of most debts.

Now, who’s eligible? For a consumer proposal your debts shouldn’t go over $250,000 (excluding your mortgage), and you’ve got to be able to make some partial payments. Compare that to bankruptcy, which is an option if you’re past due on $1,000 or more and can’t pay up.

As for your credit score and long-term financial health, these two choices affect them quite differently. Bankruptcy generally hits your credit harder and sticks on your credit report longer. Meanwhile, if you complete a consumer proposal, it looks a bit less scary on your credit record. Both choices legally shield you from creditors’ demands, but if you can’t keep up with a consumer proposal, it could get canned, forcing you into bankruptcy. However, failing at bankruptcy doesn’t have separate consequences. So, before making any moves, understand these differences. Need help? Just give us a shout by phone, text, or live chat!

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal is not the same as bankruptcy; they are different options with distinct consequences. A consumer proposal is a formal agreement between the debtor and creditors to repay a portion of the debt over a specified period, while bankruptcy involves the legal process of liquidating assets to pay off creditors. In the case of a consumer proposal, the debtor typically retains their assets and has a structured plan to pay off a portion of their debts, which is defined under the Bankruptcy and Insolvency Act (RSC 1985, c. B-3, Section 66). Conversely, in bankruptcy, a trustee may seize and sell certain assets to satisfy creditor claims as stated in Section 71 of the same Act.

Additionally, the impact on credit ratings differs; a consumer proposal remains on the credit report for three years after completion, whereas a bankruptcy can stay on the report for up to seven years. Refer to the Bankruptcy and Insolvency Act (RSC 1985, c. B-3) for more information, particularly Sections 66 (consumer proposals) and 71 (bankruptcy).

From: OSB Helper

Related Questions to Consumer Proposal And Bankruptcy

Here are the top 5 most frequently asked questions related to the comparison between a consumer proposal and bankruptcy in Canada:

1. What is the difference between a consumer proposal and bankruptcy?

A consumer proposal is a legal agreement to pay off debts for less than what’s owed over a set period, while bankruptcy involves surrendering assets to eliminate debts.

2. Which is better, a consumer proposal or bankruptcy?

It depends on your financial situation; a consumer proposal allows you to keep assets and make fixed payments, while bankruptcy can be faster but may require surrendering assets.

3. How long does a consumer proposal take compared to bankruptcy?

A consumer proposal typically takes up to 5 years, while bankruptcy usually lasts between 9 to 21 months.

4. What debts can be included in a consumer proposal versus bankruptcy?

A consumer proposal can include most unsecured debts, excluding court-ordered fines and recent student loans, while bankruptcy can eliminate most eligible debts but may not include certain student loans or fines.

5. How does a consumer proposal affect my credit score compared to bankruptcy?

Both options impact your credit score, but a consumer proposal generally has a shorter impact than bankruptcy, which can last longer on your credit report[1][3][5].

If you have a question about debt see our debt questions or ask your own debt related question.

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