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Persons with multiple debts have various options to consider, the two of which are declaring bankruptcy and filing a consumer proposal. What should you choose? There is no solution to fit everyone, so you should consider the pros and cost of both.

To begin with, you should find out if filing a consumer proposal is an option for you. You should have a stable job, so that you can make payments regularly. Your debts should be over $5,000 to be eligible but not in the excess of $250,000, which does not include your mortgage loan. Further, filing a consumer proposal is a suitable option if you cannot afford to pay all creditors in full and with interest. It is also a suitable option if you cannot obtain a debt consolidation loan. This can happen if your debt load is too high, even if you have a stable job. Finally, a consumer proposal is a preferred option to bankruptcy if, because of your income level, you will have to pay surplus income penalties.

There are more advantages to consumer proposal, one being that interest will stop accumulating once you file. Second, your creditors may agree to a partial repayment, meaning that you will pay back only a part of what you owe. This applies to unsecured debts, such as payday loans, bank loans, credit cards, and income taxes. Another benefit is that you will get rid of debt fairly quickly as the maximum period for repayment is set at 5 years. Moreover, a
consumer proposal will not affect your credit rating the way bankruptcy does. All collection attempts and activities will stop once you file a consumer proposal, and this includes wage garnishment. Alimony and support are exceptions. Finally, you do not risk losing your car, house, and other valuable assets.

Given the many advantages filing a consumer proposal presents, what are the disadvantages? One is that you will have a payment to meet every month. Truly, the amount you pay will be less, but this still stands for an obligation when it comes to your personal budget. If you cannot afford to pay, it is better not to start a consumer proposal.

One alternative to filing a consumer proposal is bankruptcy. What are the advantages? For many Canadians, bankruptcy is the worst option for getting rid of debt. One’s credit is ruined, and this can be a source of embarrassment. However, for many the alternative is facing harassing calls from collectors and creditors, receiving letters, and being threatened with potential lawsuits. On top of it, debtors risk incurring even more debt. Bankruptcy allows debtors in this situation to sort out their debts and start rebuilding their credit score in peace. One obvious advantage is that some of your property will be protected. What you can keep depends on where you live. Some of your assets will go to the benefit of your creditors, including assets that are in excess of what is known as allowed personal exemption. These include cars, boats, and real estate that the bankrupt owns as of the date of bankruptcy.

Note that bankruptcy does not wipe out all of your debts. Student loans, for example, will be erased only if the debtor attended school seven or more years ago. Debts resulting from divorce procedures, such as alimony payments, past due child support, and others will not be included. Of course, if you have incurred debts using fraudulent means, these will not be erased. These include false information on your loan or credit card application and writing a bad cheque. What can you make out of this? If most of your debts are of the non-dischargeable variety, declaring bankruptcy makes little sense, and you should reconsider your options. If most of your debts are dischargeable, you can file for bankruptcy, and such creditors are required to stop their collection efforts. Financially speaking, this allows you to start over.