Most of our clients ask us: What is the difference between a consumer proposal and bankruptcy?
Both, Bankruptcy and a Consumer Proposal need to be filed by a Licensed Insolvency Trustee (LIT) and have similar benefits:
- Eliminate debt and get a fresh start.
- Receive immediate legal protection from creditors
- Stop collection calls and wage garnishments
A Consumer Proposal is essentially an agreement made with your creditors prepared by your Licensed Insolvency Trustee (LIT or Trustee). When you file a Consumer Proposal, you agree to pay a portion of what you owe, and the creditors forgive the balance. With a Consumer Proposal, you receive the same protections as in bankruptcy but have a repayment plan as well as the opportunity to keep your assets.
In order for the Consumer Proposal to be accepted by your creditors, 51% of your creditors must agree to the negotiated compromised offer.
We often get asked, why would the creditors agree to receive less than the full dollars owed? The reason is simple, if the alternative to a Consumer Proposal is Bankruptcy, the creditors will choose to compromise, as they would end up receiving less under a bankruptcy.
Once you and your creditors agree to a proposal amount, your monthly payment is usually fixed and remains the same until the proposal is completed. When the proposal is complete, the debts are allocated an R7 credit rating for three more years (this is a better rating than a bankruptcy which you would receive an R9 credit rating for 6 years on debts written off).
Unlike filing for bankruptcy, you are still entitled to all tax refund(s) and/or credits, which you are owed. With bankruptcy, you lose all tax refund(s) and credits, which you are owed for the year of bankruptcy and prior years.
What are the qualifications to file a Consumer Proposal?
A Consumer Proposal may be a viable solution for you if:
- You have debts over $5,000, but not over $250,000 (not including your home mortgage).
- You’ve got a good job and can afford to make some payments each month.
- You just cannot afford to repay everyone in full with interest.
- You can’t get a debt consolidation loan because your debts are too high, even with your steady job.
- You don’t want to go bankrupt, because: With your income, you would be subject to surplus income payments; and you don’t want to lose any of your assets, such as your home or car.
A professional can help you determine which solution is best for your unique situation. Call us at Westgeest & Associates today to see how we can help consolidate your debt.