How is a consumer proposal different from bankruptcy?
I'm deeply in debt. I'm debating between whether I should declare bankruptcy or file a consumer proposal. Are they more or less the same thing?
The two differ in some important ways.
With a consumer proposal, as long as you make your payments, you get to keep your assets. (These might include, for example, any savings or investments, your car, your home, and so on.) You don’t lose most of your property the way you do when you go bankrupt.
As well, your income is not scrutinized for whether you have surplus income that should go to your creditors, the way it is when you go through bankruptcy proceedings.
A consumer proposal will hurt your credit score, but not for as long as declaring bankruptcy will. In both cases, you’ll be assigned the lowest possible credit score. With a consumer proposal, the information stays on your credit report for three years; with a bankruptcy, it stays on your credit report for six years (longer if you’ve been bankrupt more than once).
On the flip side, a bankruptcy can be faster than making a consumer proposal (especially a first bankruptcy, which can see you discharged in nine months).
And a bankruptcy can be cheaper. Filing for bankruptcy usually costs somewhere around $1,800. Filing a consumer proposal costs roughly $1,500, but the trustee also keeps 20% of your monthly payments as their administration fee. So if you file a consumer proposal for $30,000, the trustee will collect an additional $6,000 from you in fees.
We explain what's involved in both a consumer proposal and going bankrupt in our pages on making a consumer proposal and declaring bankruptcy.