Choosing Between Bankruptcy and Consumer Proposal

With trouble in the economy, it’s no surprise that many Canadians are experiencing debt. In addition, many of these individuals are struggling to understand how they can begin to restructure their debt and pull up their credit score. Two common options include a consumer proposal and personal bankruptcy. There are other options and 4 Pillars in Victoria reviews all options when helping you create a plan to deal with your debt. Today we wanted to look at the pros and cons of Bankruptcy and Consumer Proposal.

Determining Eligibility

When it comes to bankruptcy, the major requirement is that you owe over $1,000 and are unable to make your payments in a timely manner. With a consumer proposal, you can owe any amount up to $250,000, excluding your mortgage. You must also have the ability to repay part of the debt as soon as the proposal has been accepted.

Unlike bankruptcy, a consumer proposal needs to be accepted by your creditors or they abstain from voting.

If you find out that both options are paths you are considering, the best option is to fully understand the differences and depending on your situation you might want to offer your creditors a proposal. This will cause less damage to your credit score. If this process doesn’t work out, which is very rare, you can choose to move on to the process of bankruptcy. However, it is best to speak with a professional at 4 Pillars in Victoria to determine what the best option is for your personal situation and review all other options also.

Considering Credit Rating

No matter which option you select, it will cause issues with your credit rating. However, there is a difference in how badly the rating is affected. With bankruptcy, you will receive an R9 rating, which is the worst possible rating to be found in Canada. It will also stay on your credit report for an approximately seven years. On the other hand, a consumer proposal will give you a R7 rating. This shows you were open to negotiating with your creditors and settled your debts through a new payment arrangement. This is easier to clean up than the R9 from bankruptcy and can be removed quicker by paying out the proposal faster.

No matter what you choose, understanding how it will impact you credit rating and having a comprehensive plan to rebuild your credit is critical. At 4 Pillars in Victoria, we can help you through the process and explain exactly what to expect. You can learn more at www.4PillarsDebtConsultants.ca.