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Can You Pay Off a Consumer Proposal Early?


Tips for Completing the Terms of a Consumer Proposal More Rapidly While filing a consumer proposal helps you find relief from debt and financial stress, once you get into the groove of making payments, it’s common to feel eager to have it over and done with, to get a fresh start. The good news is […]

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Tips for Completing the Terms of a Consumer Proposal More Rapidly

While filing a consumer proposal helps you find relief from debt and financial stress, once you get into the groove of making payments, it’s common to feel eager to have it over and done with, to get a fresh start.

The good news is that this is completely legal, possible and within reach.

If you are able to pay your consumer proposal off early, doing so can be a great way to get yourself back on track sooner rather than later.

Sound too good to be true? We’ll tell you how to get there. But first, let’s rewind a bit.

What Is a Consumer Proposal?

A consumer proposal is a federal government debt relief solution, that allows you to pay back a reduced amount of the debt you owe, within a specified timeframe, interest-free. Your creditors forgive the remaining balance owed.

A consumer proposal also provides you with legal protection from creditors’ and debt collectors’ lawsuits and garnishments.

It’s important to note that a consumer proposal, usually, only eliminates unsecured debt, such as:

  • credit cards
  • bank loans
  • lines of credit
  • payday loans
  • income tax and HST debts
  • certain student loans
  • debt owed after a secured creditor has sold mortgaged assets

When filing a consumer proposal, you will need to work with a Licensed Insolvency Trustee (LIT), who will act as the Consumer Proposal Administrator and negotiate a settlement with your unsecured creditors.

The LIT will review your financial situation, determine how much you can afford to offer your creditors as a settlement, and come up with a plan for re-payment. The LIT will then prepare a number of forms that must be signed, register the consumer proposal with the federal government, and oversee the approval and administration of the consumer proposal.

How Long Until a Consumer Proposal is Paid Off?

Consumer proposals must be completed within 5 years of the official filing date – the date the LIT registered it with the federal government.

Can You Pay It Off Sooner?

There is no mandatory minimum length of time for a consumer proposal, so theoretically, it can be paid off at any time, provided you have the required funds.

Advantages of Paying a Consumer Proposal Off Early

Paying off your consumer proposal early gives you peace of mind as it alleviates you from stress and worry that would have otherwise been stretched out for many years.

Plus, it allows you to leave your debt woes in the past and focus on rebuilding your credit sooner rather than later.

When you file a consumer proposal, your credit score may be negatively affected, depending on your score prior to filing. In most cases, credit scores will decline upon filing a consumer proposal. An R7 credit rating will be added to each creditor on your credit report. An R7 is two points better than an R9 rating – the lowest rating – given to those who have filed for bankruptcy.

And even when your consumer proposal is paid off in full, the R7 credit rating will remain on your credit report for an additional 3 years.

Therefore, the longer it takes for you to pay off your consumer proposal, the longer you will have this negative information on your credit report.

Let’s say it took you 3 to 4 years to pay off your consumer proposal. This means the R7 rating for the debts included in your consumer proposal will remain on your file for a maximum of 6 to 7 years.

But, if you paid it off in just 1 year, you’d only have that negative rating information on your credit report for 4 years.

Getting a Loan to Pay Off a Consumer Proposal Early

One option for paying off your consumer proposal fast is to obtain a loan and use the funds to make a lump sum payment. This is often done by re-mortgaging a home that has increased in value during the consumer proposal. Family and spouses often assist as well.

While this can sound appealing, it isn’t always the best option, and the pros and cons of this kind of loan should be carefully weighed. Speak to the LIT/Consumer Proposal Administrator about this before committing to a new loan.

Advantages of This

The main advantage of getting a loan is that you will be able to pay off your consumer proposal sooner than you would otherwise be able to, without having to increase your payments, or pay an early payment penalty.

Disadvantages

However, there are several drawbacks of obtaining a loan to pay off a consumer proposal that should also be carefully considered.

These disadvantages include:

  • Interest payments.Unlike a loan, consumer proposal payment obligations do not accrue interest. So, if you obtain a loan to help pay off your consumer proposal, you will end up paying more due to interest.
  • Increasing your debt load.Taking out a loan to pay off your consumer proposal means you’ll be taking on more debt rather than paying off all existing unsecured debt – which is the whole point of a consumer proposal.
  • Higher risk. By taking out a loan, there is a risk you may default on payments. If you use assets such as your home or car as collateral, and you can’t make the payments on the loan, you now risk losing these assets.

Tips for Paying Off A Consumer Proposal Quickly

Here are some alternative tips for paying off your consumer proposal faster.

Increase the Amount of Your Payments

The best way to have your consumer proposal paid off early is to increase your payment amounts. However, this doesn’t have to be a dramatic increase.

Even just a small amount, such as an additional $25 per month, can make a big difference.

A good rule of thumb is to pay as much as you can each month while still being able to afford all your necessities and have money left over.

Increase the Frequency of Your Payments

Rather than making one large monthly payment, take a smaller amount from each paycheck you receive and put it towards your consumer proposal.

Having a flat amount taken off each paycheck automatically will help you to budget more easily during this time and enable you to have your consumer proposal paid off more quickly.

Make a Lump Sum Payment

If you have received a large, unexpected influx in cash, use it to make a one-time lump sum payment on top of your monthly payments.

This can include:

  • An inheritance
  • Bonus at work
  • Tax refund
  • Gift

A consumer proposal is not a life sentence. Rather, it is a fresh start!

So, if you have the means to do so, paying your consumer proposal off early will help you get back on track more quickly, so you can start working towards rebuilding your credit and achieve financial peace of mind.

To learn more about filing a consumer proposal, and to find out if this may be a suitable option to help you get your debt under control, we recommend that you speak with a Licensed Insolvency Trustee.

Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!

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Baker Tilly Ottawa Ltd.