Pros and Cons – Advantages
If you’ve reviewed the answers to the questions preceding this one, you can clearly see the advantages of consumer proposals over filing for personal bankruptcy. They are summarized as follows:
- Unlike a bankruptcy, your assets will be unaffected when you file a consumer proposal. You can keep all your assets.
- When filing a bankruptcy, you lose your income tax refund for the year of bankruptcy as well as any income tax refunds for prior years. When you file a consumer proposal, you would file your income taxes as you normally do and you would keep your income tax refunds
- When you’re bankrupt, the Licensed Insolvency Trustee is required to monitor your monthly net income and you’ll be required to make surplus income payments to you trustee if your income exceeds a certain threshold. Moreover, if your income increases during the course of your bankruptcy, your surplus income payments will also be increased. The advantage of a consumer proposal is that once your creditors have agreed upon the settlement amount, that amount is fixed. Your settlement amount will not increase if your income increases during the course of your consumer proposal.
- When you file a bankruptcy, a record of your bankruptcy stays on your credit file for a fixed period of time (7 years if you’re a first time bankrupt or 14 years if you’re filing a second bankruptcy). When filing a consumer proposal, you’ll also have a bankruptcy rating on your credit file, but only for the duration of time it takes you to pay your proposal in full. Therefore, if you are able to fully pay your proposal within 12 months after you filed your proposal, the bankruptcy will only stay on your record for the 12 months it took you to pay it in full. This provides you with much more flexibility in getting the bankruptcy off your credit record.
- You can start rebuilding your credit right after your proposal has been approved by your creditors. After your proposal is filed, it will take 45 days for your creditors to review and approve your proposal. You’ll be able to apply for and obtain a secured credit card immediately after your proposal has been approved so you can start rebuilding your credit right away
Pros and Cons – Disadvantages
A consumer proposal may cost you more than filing for personal bankruptcy. However, this higher cost is mitigated by the flexibility of a proposal with respect to how soon you can start rebuilding your credit, keeping your assets and the less detrimental impact on your credit.Case Study: Submitting a Consumer Proposal to Your Creditors »