There are multiple paths out of debt and different paths toward debt relief. Insolvency qualifies you for debt relief processes such as bankruptcy and consumer proposals. Each of these processes have unique advantages and disadvantages. Deciding which one is better for you depends on your unique financial situation, including how much debt you have, what you do for a living, and the size of your unsecured debts.
The first step in the insolvency process is talking to a bankruptcy trustee, now known as a Licensed Insolvency Trustee. They will assess your debts, income, and assets to determine whether or not you are eligible to apply for a bankruptcy or consumer proposal. As bankruptcy trustees, they can then file and manage your bankruptcy or consumer proposal.
But what are the differences between bankruptcy and a consumer proposal, and how do you know which one is right for you? A bankruptcy trustee will walk you through the pros and cons of each, but here is a quick rundown of the differences.
Why a Bankruptcy Might Make Sense
The bankruptcy process means selling your assets to settle your unsecured debts, such as credit cards, bills, payday loans, and lines of credit. Depending on where you live, certain assets are exempt, but you may wind up having to give up equity in your home above a certain exempt amount, equity in vehicles beyond a certain amount, vacation properties, and non-retirement investments. If you don’t have significant non-exempt assets, a bankruptcy can be an effective way to clear your debt now and start over. Starting over can give you a chance to start saving for your retirement, rebuild your credit rating, and set yourself up for financial success down the road. If you do have significant financial assets already, there are many compelling reasons to consider a consumer proposal instead.
Why a Consumer Proposal Might Make Sense
A consumer proposal is an alternative to bankruptcy that leaves your assets alone. Instead of selling your assets you enter into an agreement with creditors to repay them in monthly installments based on the size of your debt and how much you can reasonably afford to pay back. These agreements can last for up to five years. They include a reduction in your debt and stop both interest and legal collection actions, including wage garnishments and collection calls.
Consumer proposals take longer to conclude and may spend more time on your credit rating. Besides preserving financial assets, you also want to consider what your future financial goals are and how well you can save for the future. If your goal is to save for a mortgage and buy your first house, a bankruptcy may help you rebuild your credit faster. If you already own your home and you want to protect equity you’ve worked hard to build, a consumer proposal will help protect it.
Some problems are easy to fix right away. For example, it’s easy to improve the water quality at your work by upgrading the filters, or hiring a roofer to install new shingles. Improving your financial situation isn’t as easy as replacing a filter, but with the right help, it can be as easy as watching the roofer repair your roof. Professional help can go a long way in a difficult situation, especially when it comes to personal debt and financial matters.