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Consumer Proposal Vs. Bankruptcy Vs. Refinancing

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Consumer proposal, bankruptcy, and mortgage refinancing are all crucial financial strategies that individuals in Ontario (and beyond) may consider when facing debt or financial difficulties. While they serve the common purpose of debt management, each method carries its own set of mechanisms, implications, and potential outcomes. Let’s delve deeper into each:

Consumer Proposal

A consumer proposal stands as a formal, legally binding process regulated by the Bankruptcy and Insolvency Act (BIA) in Canada. It provides a structured approach to settling debts for less than the full amount owed. Here’s how it works:

  1. Formal Offer: Individuals propose a repayment plan to creditors, typically through monthly payments over a specified period, which can extend up to five years.
  2. Creditor Acceptance: Once accepted by creditors representing a majority of the debt, the proposal becomes binding on all creditors involved.
  3. Bankruptcy Avoidance: It offers individuals a viable alternative to bankruptcy while still effectively managing their debts.
  4. Credit Implications: Although a consumer proposal affects credit ratings, its impact is generally less severe compared to bankruptcy.

Bankruptcy

Bankruptcy is a legal process providing individuals relief from overwhelming debt. It operates under the supervision of a Licensed Insolvency Trustee (LIT) and involves the following key aspects:

  1. Asset Surrender: Individuals surrender most of their assets to the trustee, who then sells them to repay creditors.
  2. Duration: The duration of bankruptcy varies from nine to 21 months, contingent upon factors like income and previous bankruptcy filings.
  3. Fresh Financial Start: Despite its consequences, bankruptcy offers individuals a chance for a fresh financial start.
  4. Credit Implications: However, it comes with significant consequences, including damage to credit ratings and restrictions on financial activities post-discharge.

Mortgage Refinance

Mortgage refinancing, on the other hand, focuses on restructuring or replacing an existing mortgage with a new one, often to capitalize on better interest rates, alter the loan term, or access equity.

  1. Debt Consolidation: While not directly addressing debt like a consumer proposal or bankruptcy, refinancing can serve as a strategy for consolidating debt.
  2. Benefits: Refinancing can lead to lower interest rates, reduced monthly payments, or access to cash by borrowing against home equity.
  3. Requirements: Typically, mortgage refinancing necessitates a good credit rating and sufficient equity in the property.


In essence, a consumer proposal and bankruptcy represent formal debt resolution processes with legal ramifications, whereas mortgage refinancing is a financial strategy aimed at restructuring mortgages to enhance financial circumstances. Each option presents its set of advantages and disadvantages and the optimal choice hinges on individual financial situations and objectives.

For personalized guidance on navigating consumer proposals, bankruptcy, or mortgage refinancing, it’s advisable to seek assistance from financial advisors or licensed insolvency trustees. If you’re contemplating any of these options, don’t hesitate to reach out to us at Mortgage Suite Inc. We’re here to help!

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