If you are wondering what way to choose to put an end to your debts, there are two major insolvency solutions from which to choose. While both the solutions can resolve your debts and provide the legal protection you need from the creditors, there are differences between them you should understand properly.
Bankruptcy is a legal proceeding that is to be filed under the Bankruptcy & Insolvency Act for surrendering the assets for which the consumer is going to be completely discharged from the unsecured debts. On the other hand, a consumer proposal is a legal proposal for consumer credit to be filed under Bankruptcy & Insolvency Act wherein an offer is to be given to the creditors to settle the debts for a lesser amount than what you owe.
Filing with LIT or Licensed Insolvency Trustee
When comparing the differences between consumer proposal and bankruptcy, the first thing you need to understand is that both have to be filed by Licensed Insolvency Trustee or LIT. What are the benefits of filing with LIT?
- When you file bankruptcy or consumer proposal with LIT, all the unsecured debts are included.
- It acts as binding on all the unsecured creditors including income tax.
- Finally, filing with LIT is similar to a stay of the proceedings against the unsecured creditors.
Consumer proposal is a better option
When your debts are more than you can settle or handle, you might wonder whether to file a consumer proposal or bankruptcy. While the situation of every debtor differs, the following points highlight why consumer proposal is a better option than bankruptcy.
- Bankruptcy is going to be an expensive option if your income is high or is expected to rise.
- The system of a consumer proposal is simplified and streamlined when compared with bankruptcy.
- In bankruptcy, you tend to lose your tax refund along with the other assets.
- The terms of a consumer proposal are structured up front.
- In consumer proposal, you can decide what you can afford to pay.
Even though a consumer proposal may not be the best solution for every debtor, but it is certainly a good option for those people with more debts than they can manage and those who prefer to take charge of their debt, make a plan and work out a methodology to deal with them. However, if your debt situation favors bankruptcy, the best option is to consult with a bankruptcy law lawyer to know if it is the right way to resolve the debts depending on your case.
Role of a trustee in consumer proposal
As far as the role of the trustee is concerned in a consumer proposal, it is to compare different alternatives with the debtor. However, if you lack the ability to afford credit counseling or obtain a debt consolidation loan, these alternatives can be used to pay to the creditors without getting into the burden of additional cost and the only options that are going to stay are consumer proposal or bankruptcy, and prevent the chance of being sued.
Flexibility in consumer proposal
With the system of a consumer proposal, you will experience flexibility in making the payment. A majority of the amount of consumer proposal is to be carried out through monthly payments to the trustee who is going to distribute the funds among the creditors. In addition to this, the extra payments can be given at any time due to which the proposal amount is paid quickly. Furthermore, you can involve a third party such as a relative of yours to make lump sum payments on your behalf. Finally, the consumer proposal has better credit rating when the amount is paid off as compared with bankruptcy.
Choosing the option of bankruptcy
If you want to get relief from the pressure of debts, bankruptcy is an ideal option although it differs from consumer proposal in many ways. When it comes to the role of trustee in dealing with bankruptcy and insolvency act, you must know the following.
- The trustee can oversee your income.
- They are going to file the income tax return in the year of filing bankruptcy.
Bankruptcy is an ideal solution when you own a small business and for those who are not working or have a very low-income base. For the debtors who are honest about the payments of debts, bankruptcy offers the ideal solution. For those people involved in fraudulent activities and unable to follow up with the duties of the bankrupt need to go to the court for discharging the debts.
Bankruptcy is one of the most viable options for those debtors who are unfortunate and are unable to repay their debts. For resolving the debts issues properly, the first step you need to take is to hire a professional and explore the options that are available and determine the best move.