Consumer Proposal or Bankruptcy: Is There a Difference?

by J. Douglas Hoyes

There is a common perception that there’s really no difference between a consumer proposal and filing personal bankruptcy, and in some respects that’s true.  Both consumer proposals and bankruptcy:

  • stop wage garnishments;
  • stop collection calls;
  • deal with your debts, and
  • give you a fresh start.

On your credit report perfect credit is an “R1”, a consumer proposal is an “R7”, and a personal bankruptcy is an “R9”, so from a credit report point of view a consumer proposal is a bit better, but they aren’t significantly different.  So why would someone choose to file a consumer proposal instead of a bankruptcy?

The number one reason for filing a consumer proposal is certainty.  Once your proposal is accepted by your creditors, you know exactly what you are required to pay.  You keep your assets, including your tax refund, so you know exactly what deal you have made to deal with your debts.

With a bankruptcy the amount you pay can change with your income.  If your surplus income increases, you pay more, and your bankruptcy could be extended for a year.  What you thought would be a simple 9 month bankruptcy with small payments could become a 21 month bankruptcy with higher payments if your income increases.If you have relatively low income and you don’t expect it to increase, and if you don’t own any assets or expect a tax refund, bankruptcy may still be a viable option.  However, if there’s a chance your income may increase, or you may be getting a tax refund, a consumer proposal may be worth considering.

More importantly, if you want to know exactly what you will be required to pay each month a consumer proposal is often the best solution.For more information, here’s my video on what bankruptcy is, recorded live at 570News:

Here’s another live segment where Ted Michalos and I discuss the differences between a consumer proposal and bankruptcy:

So yes, there is a difference between a consumer proposal and a bankruptcy: certainty.  If you want to know what you will be paying each month, a consumer proposal may be the correct option for you.


Douglas Hoyes is the co-founder of Hoyes, Michalos & Associates Inc., Ontario's largest independent personal insolvency firm, and the trustee responsible for the Hoyes Michalos Cambridge office.

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