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Bankruptcy vs. Consumer Proposal: What’s the difference?

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Claiming personal bankruptcy or filing a consumer proposal are two of the most common debt relief solutions, not only in Edmonton, but nationwide.
Both procedures help you deal with your debts and creditors, but there are some significant differences. At A.C. Waring & Associates Inc., we want you to know exactly what they are and the pros and cons to each option.

Filing for Personal Bankruptcy

When overwhelmed with debt, filing for bankruptcy can be a powerful solution. But it’s not for everyone. Here’s what you need to know:

  • Bankruptcy absolves you of all or most of your credit related debts.
  • It does not absolve you from mortgages, student loans, alimony or child support.
  • You must have more than $1,000 of debt and be unable to pay on time.
  • Your credit rating, if not already at R9, will drop to R9 and could stay on your credit report for 6 years.
  • You will remain in bankruptcy for a minimum of 9 months if you have not been bankrupt before and you must prepare income and expense reports during that time.
  • If you have surplus income while bankrupt, you may be required to make some additional monthly payments toward your debt. If you receive a bonus or a raise (any additional income), your monthly payments could increase.

Filing a Consumer Proposal

Rather than eliminating your debt through bankruptcy, a consumer proposal helps you repay all or a portion of it. Consumer proposals can only be filed by a Consumer Proposal Administrator who is a Licensed Insolvency Trustee.
The proposal administrator will assess your situation and submit a proposal to your creditors on your behalf with the goal of reducing your total debt and lowering your monthly payments. Here are some points to consider:

  • More than 50% of your unsecured creditors must agree to the terms of the proposal or it could be denied.
  • Your total debt must not be greater than $250,000 (excluding your mortgage).
  • Your credit rating will drop to R7 (poor credit). The R7 will show on your credit report during the repayment term (usually 3 years) and for an additional 3 years after that.
  • There are no monthly expense or income reports to complete and, ordinarily, you keep all of your assets.
  • If your situation improves, you can even increase your payments at any time to pay off your proposal faster. This way it will come off your credit history sooner.

Other options are available

After speaking with a Licensed Insolvency Trustee you may find other solutions that are more appropriate for your situation. This might include, debt restructuring or budget management alterations.
A.C. Waring & Associates Inc., is your debt relief firm in Edmonton. No appointment is ever necessary to receive a free consultation or financial advice. Drop in or call us. Get on the road to debt freedom! Give us a call at 780-424-9944, 1-800-463-3328, send us a message online, or drop in to see us today.

Written by Arthur Waring

Arthur earned his Bachelor of Arts from the University of Western Ontario before earning a Bachelor of Commerce from the University of Windsor. During university, he also participated in a French immersion program in Trois Pistol, Quebec, and has been employed for several national firms over the years.

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