519-646-2222What is the difference between a Proposal and Bankruptcy
Licensed Insolvency Trustees are often asked “what is the difference between a Proposal and a Bankruptcy?”. The answer is a little complicated because it depends a lot on your individual circumstances.
If you have no house and low income and have never been bankrupt before then a Bankruptcy may be a better solution, however, if you have a house and a reasonable income a Proposal may be a better option.
If you have had a series of bankruptcies in the past, a Proposal might be a better idea than filing another Bankruptcy. All things being equal the difference between a Bankruptcy and Proposal is not really significant.
A Proposal stays on your credit report for three years after the Proposal is completed and a first-time Bankruptcy is reported for six years after it is discharged. A second (or more) time Bankruptcy lingers on the credit report for fourteen years after discharge. But the credit report itself is not a showstopper anyway – if it were, we would not see people filing five bankruptcies.
Two main factors make a Proposal more attractive, home ownership and the requirement to pay surplus income. I am not going to do a deep dive into either as we covered these topics in previous blog articles.
However, suffice it to say that either surplus income or an increase in home equity can bring a less than predictable payment into consideration during a Bankruptcy. Meanwhile, a Proposal has the advantage of locking down the payment arrangements right at the beginning and brings an air of predictability to the proceeding.
Bankruptcies are more immediate and finite than Proposals because when you file a Proposal you may enter into a period of negotiation and Creditors can refuse to accept a Proposal. Creditors cannot refuse to accept a Bankruptcy filing, even though they may be able to, under special circumstances, oppose a discharge.
At the end of the day, neither a Proposal nor a Bankruptcy will stop you having access to more credit in the future – which is a major concern for people living in Canada.