Bankruptcy is not the only option for someone with serious debt, there is another option that people should be aware of, namely the consumer proposition.

Whereas in a bankruptcy your assets are assigned to a trustee (subject to exemptions) who then liquidates them to pay your unsecured creditors, this is not the case with a consumer proposition. The consumer proposal, under the Bankruptcy and Insolvency Act, is an offer to pay your secured creditors an agreed amount of money to pay off your debts and thus avoid bankruptcy. This money is paid without interest for a period of up to 5 years.

When a consumer proposition is presented, 3 important things happen:

Interest stops on your debts

Your assets are protected from creditors and there is a suspension of the procedure.

Creditors can no longer contact you by phone or mail or by any other means.

As long as you keep payments, your assets are protected by law. This option is often preferred by people with savings or equity in their home or by small business owners who need to protect their business assets to maintain an income. If three payments are missed, the proposal is canceled and you go back to where you started!

Consumer proposals negatively affect credit and are reported to the Equifax and Transunion credit bureaus up to 3 years after the proposal is settled. One option to speed up credit creation is to settle the proposal earlier, which will remove it from the credit bureau sooner.

Other advantages of the consumer proposition against bankruptcy are:

If your income increases during a proposal, your payments to creditors do not increase. In the event of bankruptcy, your income is monitored and payments to creditors are adjusted accordingly.

Inheritances and windfalls are kept, while in bankruptcy they are paid to creditors.

You can remain a director of a company, while in bankruptcy you cannot

You can still sponsor someone in Canada, in bankruptcy you cannot until you are discharged.

There is an opportunity to rebuild your credit faster by paying your proposal early

Bankruptcy is not the end of the world as some people may believe and it can be seen as a good opportunity to hit the reset button and start over. Even if there are assets that can be seized in bankruptcy, the debtor generally has the option of paying additional funds in lieu of the asset’s value.