Discover the differences between consumer proposal and bankruptcy in Canada. Learn what assets are exempt and which ones can be taken during bankruptcy to repay creditors.
When burdened by debt, Canadians typically weigh two main options: consumer proposals and bankruptcy. Both offer a path to financial relief, but they differ in terms of the process, the impact on your assets, and how they affect your financial future. Here’s a clear breakdown of each, with a special focus on what happens to your assets during bankruptcy.
Consumer Proposal and Bankruptcy
Consumer Proposal: This is a legal arrangement where a Licensed Insolvency Trustee (LIT) negotiates with your creditors to reduce the amount you owe, typically repaying 30-80% of the original debt over a period of up to five years. One key benefit of a consumer proposal is that it allows you to keep your assets, such as your home and vehicle. Additionally, interest on your debts stops accumulating once the proposal is accepted, and creditors are prohibited from taking legal action against you.
Bankruptcy: Bankruptcy is generally seen as a last resort. It involves surrendering control of certain assets to a trustee, who will sell these assets to repay creditors. Bankruptcy wipes out most unsecured debts, such as credit card debt and personal loans, after a 9- to 21-month period, depending on your income. However, bankruptcy has long-term consequences, including a significant impact on your credit report, which can last up to seven years or more, depending on your history.
What Can They Take During Bankruptcies?
In Canada, certain assets are exempt from seizure, which means that even if you file for bankruptcy, you won’t lose everything. These exemptions vary by province but generally include:
- Personal items: Essential clothing, basic household furnishings, and food are typically protected.
- Primary vehicle: In Alberta, you can keep a vehicle worth up to $5,000.
- Tools of the trade: If you rely on specific tools for your job, these may be exempt up to a value of $10,000.
- Home equity: In Alberta, you can keep up to $40,000 in home equity.
However, non-exempt assets—which are usually higher-value items or second properties—can be taken to pay off creditors. For example:
- If you own a second vehicle or any luxury items, these would typically be sold.
- Your tax refunds and certain investments might also be seized to pay your debts.
Another important consideration is surplus income, which could affect your payments. If your income exceeds a government-set threshold, you might have to make additional payments into your bankruptcy for a longer period.
Which Option is Best?
A consumer proposal is often better for those who want to avoid asset seizure and have a manageable income to make monthly payments. It also has less of an impact on your credit score. Bankruptcy, on the other hand, offers a faster resolution but comes with asset loss and a longer-term hit to your credit.
Consulting a Licensed Insolvency Trustee is essential to determine which option best fits your financial situation, especially if you’re concerned about losing significant assets.
Debt recovery in Canada doesn’t have to be a lonely or shameful journey. By breaking the stigma surrounding debt and seeking the support of professionals like Blanchard & Co., you can regain control of your financial future. Whether you’re considering a Consumer Proposal, Debt Consolidation, Credit Counselling, or Bankruptcy, Blanchard & Co. is here to help you every step of the way. Remember, asking for help is not a sign of weakness—it’s a powerful step toward financial freedom.
If you’re still unsure whether a consumer proposal or bankruptcy is right for you, give us a contact us at 403-348-5815 and we’ll help you figure it out FOR FREE.