An unsecured present leads to an unsecured future. Financial stability and money management are important for hassle-free life. Even the slightest negligence in that aspect can put you in the vicious cycle of debt. Debts can not only ruin the present but also make your future unpredictable. Surveys indicate that three-quarters of Canadians, i.e., 73.2% of the people in the country have massive debt. This reveals that you are not alone and many people face financial difficulties. However, the best part is that you have a practical solution to get rid of your debts.

The Canadian government provides a solution under the Bankruptcy & Insolvency Act. Here, insolvency means your inability to fulfil financial obligations. In such a situation, you can apply for bankruptcy. Given below are the different bankruptcy solutions and their processes.

What are bankruptcy solutions?

A consumer proposal and personal bankruptcy are the two most preferred solutions in case of debt. You need to understand the difference between them and observe which one suits you the best. Here is how they work:

Consumer proposal

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A consumer proposal is a legal bond between you and your creditors set up by a Licensed Insolvency Trustee (LIT). You can apply for this solution when you have a fixed income and can afford to pay off your debts. For this, you have to approach an LIT who will examine your situation and develop a proposal accordingly. This proposal includes paying off a percentage of the total amount and/or extending the time to pay off your debts. Your creditors are included in the proposal and once they approve it, it becomes a legal bond.

Personal bankruptcy

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You opt for personal bankruptcy when you don’t have a stable income to pay off your debts and/or the debt levels are intense. Personal bankruptcy typically lasts for 9 to 12 months, and within these months, you have to fulfil all the terms and conditions laid by the legislation. Additionally, you will have to hand over your significant assets such as a house and other investments to the trustee. They will further liquidate them and contribute funds to creditors.

Why approach a Licensed Insolvency Trust?

​Be it a consumer proposal or personal bankruptcy, you will have to approach an LIT. They are federally regulated professionals who provide assistance to individuals and businesses suffering from debts. Your first consultancy can be free of charge, wherein you clarify all your doubts. Furthermore, they examine your situation closely by asking about your assets, salary, expenses, and debt levels. Additionally, they try to find the cause of your debts. After this, they suggest all the possible solutions with their pros and cons, so that you can choose the best option. Once this is done, the LIT will go ahead with the following process:

Consumer proposal:

• ​Arranging all the paperwork
• Developing a consumer proposal
• Filing a proposal to the Office of the Superintendent of Bankruptcy
• Sending the proposal to the creditors for approval 

​Once approved, you have to make monthly payments to your trustee, further paying your creditors.

Personal bankruptcy: 

• Arranging the paperwork
• Submitting to the Office of the Superintendent of
  ​Bankruptcy
• Sending your documents to the creditors
• Liquidating your assets (depends on the situation)  

No matter which solution you apply for, your trustee will assist you throughout the process until your discharge.

What is the difference between consumer proposals and personal bankruptcy?

Let’s understand some of the key differences between a consumer proposal and personal bankruptcy:

Consumer proposal

Personal bankruptcy

​Timespan can be from 1 to 5 years	Time length can be from 9 to 12 months (depends on the situation)
Debts should be up to $250,000 excluding home mortgage	​No limits on debts
​The first consultancy with the LIT  is free and the cost of the consumer proposal is included in the proposal payments	​The first consultancy with the LIT is free and the administrative cost is included in bankruptcy cost, if required
More preferred and favorable than personal bankruptcy	Personal bankruptcy is the last resort
After sending out the proposal, creditors have 45 days to approve	Creditors’ votes are not required to start the process of bankruptcy
You have control over your assets and finances	​You have to hand over your assets to the trustee who can liquidate them and contribute the funds to creditors
​Creditors get more amount than what they would receive in bankruptcy	The amount is based on the assets and salary
You have to pay a fixed amount even if your salary increases	Your payments will increase if your salary increases
​You can pay off your debts early	You have to adhere to the timeline
​After completing the process, you get the certificate of full performance and become debt-free	​After completing the process, you get the certificate of full discharge and become debt-free

What are the signs that indicate you need to apply for a consumer proposal?

●  You owe under $250,000
●  You are unable to pay on time 
●  You get threatening calls and letters from creditors 
●  You have a regular income 
●  You can afford to pay your debts

What are the signs that indicate you need to apply for personal bankruptcy?

●  You are unable to pay your monthly bills
●  You depend on your credit cards for essentials
●  Your debts can’t seem to get over despite making monthly payments 
●  Your assets are at risk 
●  You have no regular income

Every individual deserves to live a quality and dignified life. So no matter what your debt levels are, the solution is just a call away. You can find an experienced trustee at Bankruptcy Canada - we aim at securing lives by providing accurate guidance.