This month I want to explain some of the key differences between a consumer proposal and bankruptcy as these are often misunderstood.
Both consumer proposals and bankruptcy will eliminate unsecured debts. Unsecured debts are those which are not secured against an asset such as a car or house, typical examples being credit cards and lines of credit.
A consumer proposal is an offer by a debtor (a person in debt) to pay back to his/her creditors an amount which can be reasonably afforded either as a monthly instalment over a maximum period of 5 years or as a lump sum or a combination of the two. In most cases the creditors agree to accept a portion of the debt (sometimes as low as 25% of the original debt) and the remainder of the money owing is forgiven.
When a debtor files a consumer proposal all their assets are protected from the creditors and no legal action may be taken for recovery of the debt.
When a debtor files for bankruptcy he/she is again protected from legal action for recovery of the debt but assets are not protected and may be seized by a trustee in bankruptcy to pay the creditors for money owing (unless they are exempt, this will be discussed in future article).
Also if the debtor`s monthly income exceeds a certain threshold then a portion of this will also be paid to the creditors for a defined period of time.
This is an extremely brief summary of the differences and professional advice should be sought before making any decisions as to best course of action.