Filing for bankruptcy is a big decision that should not be taken lightly.
It can have a negative impact on your credit score for years, and it may be difficult to get approved for a loan or mortgage in the future.
There are other options available to you if you are struggling with debt, such as a consumer proposal.
In this article, we will discuss six reasons why a consumer proposal is a better idea than bankruptcy.
What is a consumer proposal?
A consumer proposal is a legal procedure by which you may negotiate with your creditors to pay off a portion of your debts.
For many, this might be an appealing alternative since it does not entail the same negative consequences as bankruptcy.
When you submit a consumer proposal, you will work with a competent insolvency trustee to establish a plan to repay your creditors.
For example, if you are considering getting a consumer proposal in Ontario, you should consult with a local Licensed Insolvency Trustee there. This repayment plan lasts five years or less.
So, let’s look at six reasons why going through with a consumer proposal rather than filing for bankruptcy would benefit you.
1. You will not have the same negative impact on your credit score
When you file for bankruptcy, it will stay on your credit report for up to seven years.
This can make it challenging to get approved for a loan or mortgage during this time.
A consumer proposal will stay on your credit report for at least three years after completion, which can be a much shorter time frame.
Once your consumer proposal is paid off, you can start rebuilding your credit score.
2. You may be able to keep your assets
When you file for bankruptcy, you may have to give up some of your assets, such as your car or home.
With a consumer proposal, you can keep all of your assets, including all savings and investments.
This is an important consideration, as losing your home or car can have a significant impact on your quality of life.
It can also make it more difficult to get to work or school, which can impact your ability to repay your debts.
3. You will have more time to repay your debts
You make payments for 9 to 21 months during bankruptcy. With a consumer proposal, you will have up to five years to repay your debts.
This allows you to spread out payments over a longer period, making it more affordable.
4. You can keep your tax refund
While you can eliminate tax debts through both a consumer proposal and bankruptcy, declaring bankruptcy results in you losing your tax refund.
You also have to file tax returns before, during and after you file for bankruptcy.
However, in a consumer proposal, you keep all tax refunds, which gives you some extra money to pay off your proposal faster.
5. You continue to run your business
If you own a business, you can continue to be a company director and manage your business if you choose a consumer proposal.
This is not the case with bankruptcy; you must resign as director until you are discharged.
If you have built your business from the ground up or rely on your company’s income, filing a consumer proposal can help you keep your business afloat while you repay your debts.
6. You don’t need to perform any duties
To complete your bankruptcy, you must carry out specific duties, such as supplying evidence of your income and expenses to your Licensed Insolvency Trustee every month.
A consumer proposal has no duties to carry out.
There are several reasons why a consumer proposal may be a better option than bankruptcy.
If you are considering either of these options, be sure to speak with a Licensed Insolvency Trustee to discuss your unique financial situation.
They can help you decide which option is best for you and provide guidance on how to move forward.