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Why is a Consumer Proposal Seen as an Alternative to Bankruptcy?

In 2016, over 62,000 Canadians filed a consumer proposal, while some 63 thousand chose to file for bankruptcy. Across the country, there were only 866 more bankruptcy claims than consumer proposal filings last year. And while 34 fewer Canadians filed for bankruptcy than in 2015, there were over 4,000 more consumer proposals filed last year than the year before. As the statistics suggest, a consumer proposal is becoming an increasingly popular alternative to bankruptcy.

Here in Newfoundland, consumer proposals have been a bit slower to catch on. They only made up 35 per cent of all consumer insolvencies filed in 2016. However, we saw substantially more consumer proposals filed than the year before—847 versus 324. So, why is a consumer proposal being used by more and more people as an alternative to bankruptcy? Here are a few key reasons:

  • A consumer proposal offers the same legal protections as bankruptcy. Once you file a consumer proposal, all legal action, wage garnishments and collections calls from creditors will stop.
  • A consumer proposal allows you to pay off your debt over a longer timeframe. When you file a consumer proposal, a Licensed Insolvency Trustee will negotiate with creditors on your behalf, reducing the amount of debt you’ll have to re repay, and extending the time you have to repay it over three to five years.
  • A consumer proposal freezes all interest charges. Once you file a consumer proposal, interest stops accumulating on your debt.
  • A consumer proposal lets you keep your possessions. This is perhaps the biggest advantage a consumer proposal has over bankruptcy. A consumer proposal will settle your debts with creditors while protecting all of your belongings from seizure. When you file for bankruptcy, some of your belongings will be protected, but others may be required to be sold in order to repay your creditors.

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