Toronto Consumer Proposal Vs Bankruptcy

We all might face financial problems during our lives. This can be as a result of a sudden job loss, a medical condition or other major life events. Whatever the cause of your financial difficulties, it is important to know that there are options available to assist you. Bankruptcy and Consumer Proposal are both legal debt relief options available to help Canadians with their unmanageable debt. They both can be effective forms of eliminating/reducing debt. These formal debt solutions are governed under the Canadian Bankruptcy and Insolvency Act and can only be administered by a Licensed Insolvency Trustee.


What is a Consumer Proposal?

A Consumer Proposal Toronto is a proposed plan to offer your creditors a percentage of what is owed to them. As your Trustee, we will work with you to develop a proposal that is more likely to be accepted by your creditors. Once the proposal is accepted, you will start paying monthly payments to your Trustee for the duration of the proposal. Your Trustee will then distribute the funds among your creditors. Consumer proposal can last up to 5 years or the debtor could provide an immediate payment. The debtor also has the option to pay off his/her proposal earlier. A Consumer Proposal can help eliminate your debt (Up to $250, 000 – excluding residential mortgages) without having to declare Bankruptcy. You will be able to keep your assets as long as you are making payments to your secured creditors. Once you have met all the required payment terms and attended 2 mandatory counselling sessions, you will be legally released from all the debts that were included in your proposal. Consumer Proposal will remain on debtor’s credit report for 3 years after the completion date. It is important to know that you can start rebuilding credit while in a Consumer Proposal.

What is a Bankruptcy?

Bankruptcy is also a legal process that can help individuals and corporations deal with their financial obligations. When you declare Bankruptcy, your assets vest with your Trustee, with certain exemptions such as clothing, tools of your trade, and household goods. In most circumstances the individual will be able to retain all assets by settling the equity with the Trustee. In a bankruptcy the debtor is required to attend 2 mandatory counselling sessions led by a qualified counsellor or a Licensed Insolvency Trustee. A first bankruptcy will last a minimum of 9 months. If the debtor has income above a certain threshold he/she will be bankrupt for a minimum of 21 months. The second bankruptcy will last a minimum of 24 months and up to 36 months if income is above a certain threshold. A first bankruptcy filing will remain on debtor’s credit report for 7 years from the discharge date. A second bankruptcy filing will remain on debtor’s credit report for 14 years from the discharge date.

Key similarities and difference between a
Consumer Proposal and Bankruptcy:

Consumer Proposal


Protection from legal actions, collection calls, and wage garnishment is immediate.

Protection from legal actions, collection calls, and wage garnishment is immediate.

Debtor is not required to surrender his/her assets.

While certain assets are protected, debtor must surrender or repurchase some of his/her assets.

Once paperwork is done, income during the proceeding is not required to be reported.

Income and expenses are reported monthly. An increase in income can increase the payments and it might also extend the term of the bankruptcy.

Any tax refund belongs to the debtor.

Any tax refund is part of the estate and belongs to the creditors.

If the debtor misses 3 payments the Proposal is considered annulled. Protection from creditors will be withdrawn and they will have the right to pursue collection action against the amount owed. Once the debtor’s payments are complete, the Trustee will issue a Certificate of Full Performance. At that point the debts are discharged.

Trustee will only issue the certificate of discharge once all the bankruptcy duties have been complied with and all required payments are made. At that point all debts are discharged.