A person who accumulates many loans and is unable to pay them off has only two options, a consumer proposal or insolvency. In Toronto Ontario, you may need to make a choice between these two if you are unable to come up with a tangible debt management solution or unable to obtain a debt consolidation loan. Both insolvency and consumer proposals are excellent ways of settling financial obligations with your creditors but each has its advantages and disadvantages.
The difference between the two
For a consumer proposal, the debtor makes an offer to the unsecured creditors involving payment of a specific sum of money over a period not exceeding 5 years. The amount you end up paying is less than the actual debt owed and is payable through a trustee. In insolvency, you are basically filing for bankruptcy and your creditors, trustee and the courts have the upper hand in determining how much the bankruptcy will cost you. Although it eliminates all your debts (in most cases), it also makes it difficult for you to obtain credit in future. As such, it should be the last resort and one should file for bankruptcy only after consulting with a licensed trustee.
Pros of Consumer Proposal
– You retain control of your assets as long as you continue making the agreed payments without defaulting. Additionally, you end up paying less than the actual amount owed.
– You are spared the lengthy bankruptcy process, which includes appearing in court.
– A proposal will not affect your job status and you can continue to enjoy working as usual.
– If you have secured creditors, they will allow you to continue making payments under the agreed secure plan.
– Unsecured creditors will not carry out collection actions against you.
– Garnishees on bank accounts and/or wages, penalties and interests will stop accumulating immediately you file the proposal.
– The proposal, which is treated as an R7, will only reflect on your credit report for 3 years after the proposal period is over.
– The amount you finally pay is usually more than you would pay in a bankruptcy.
– The repayment period is limiting too. The payment period must exceed 2 years but should not be more than 5.
– If you default on payments for 3 months and fail to file an Amendment to your Consumer Proposal, the proposal stops being legally binding and your creditors can take legal action against you. Worse, you may be compelled to file for Insolvency.
Pros of Insolvency
– Insolvency eliminates most if not all your unsecured debts.
– It protects you from legal action, wage garnishees and debt collection actions.
– It is a quick process. The whole process is usually over in 9 months, 21 at most.
– It is the cheapest option compared to other available options.
– You must turn over all non-exempt assets to the trustee.
– You must appear in court for a discharge hearing.
– In some professions, a person declared bankrupt can no longer practice or work in that profession.
– It has the severest impact on your credit rating – often reverts it to zero. As an R9, it reflects on your credit report for at least 7 years and 14 years for a second time bankruptcy.