How to Know If a Consumer Proposal is the Best Option for Debt Relief
Are you feeling overwhelmed by large amounts of debt or struggling to pay off your credit cards? If so, bankruptcy may not be your only option.
If you find yourself buried under a mountain of debt, you may want to consider filing a Consumer Proposal to help you find relief from your debt and to avoid filing for bankruptcy.
What is a Consumer Proposal?
A Consumer Proposal is an alternative to personal bankruptcy that allows you to negotiate a settlement with your creditors. You must agree to pay back part of what you owe within a specified timeframe, and your creditors will forgive the balance. A Consumer Proposal provides you with legal protection from debt collectors while you partially repay your total unsecured debt with zero interest.
The settlement must be negotiated with your creditors through a Licensed Insolvency Trustee (LIT) acting as a Consumer Proposal Administrator. A LIT is a federally licensed professional qualified to help you understand your financial situation and to prepare a Consumer Proposal to be presented to your creditors.
Criteria for Filing a Consumer Proposal
In order to be eligible for Consumer Proposal you:
- Must be 18 years of age or older.
- Cannot owe more than $250,000 in debt. Couples may be eligible to file a joint Consumer Proposal provided their total debts do not exceed $500,000. These amounts do not include a mortgage, or mortgages, on your principal residence.
- You must be unable to repay your unsecured debts within a reasonable period of time.
- Must work with a LIT to assess your finances and budget, your eligibility to file a Consumer Proposal, and to prepare the Consumer Proposal for filing.
- Must be able to show that you will likely have a steady income that will allow you to carry out the payment terms of the Consumer Proposal.
- Must not be in an incomplete Consumer Proposal, a Proposal, or owe unsecured debts previously included in a Consumer Proposal that was not completed, annulled.
Will My Creditors Accept My Consumer Proposal?
The chances that a carefully and thoughtfully prepared Consumer Proposal will be rejected by creditors is low. Most creditors accept Consumer Proposals because they provide a better outcome for you and them. Also, a Consumer Proposal is often appealing to a creditor because they will typically receive more money back than if you had filed for bankruptcy.
Benefits of a Consumer Proposal
Compared to bankruptcy, filing a Consumer Proposal has many advantages, often making it a more desirable debt relief solution. Here are some of the main benefits.
Keep Your Assets
One of the most significant benefits of a Consumer Proposal is that your assets are not taken for the creditors. This means that you are able to keep your assets, including equity in your home, investments, and tax refunds.
Avoid Surplus Income
With bankruptcy, you pay more if your income increases. But with a Consumer Proposal, you have fixed payments that never increase, even if your income does.
Reduced Monthly Payments
A Consumer Proposal allows you to repay just a portion of your debt, and often debts are reduced by as much as 70%. And because interest is waived, you will see significant savings when it comes to your monthly budget and payments.
A Consumer Proposal provides you with protection from creditors, putting an end to collection calls, and wage and bank account garnishments. And once it’s approved by the majority of your creditors (the majority is in dollars owed, not the number of creditors), the Consumer Proposal becomes binding on all one of them, whether or not they accepted the Consumer Proposal.
For many people with a lot of debt, bankruptcy is the last resort that may lead to the loss of assets and the poorest credit rating outcome. But a Consumer Proposal allows you to avoid bankruptcy and still be relieved of much of your debt.
A Consumer Proposal filing legally freezes the negative creditor information on your credit report that would otherwise never be struck from the report and would forever be on your credit history. A Consumer Proposal will also give you a better credit score and rating than if you went bankrupt.
Is a Consumer Proposal Worth It?
While Consumer Proposals are often the best solution for some when it comes to debt management, they are not the best option for everybody.
One disadvantage of a Consumer Proposal is that it may take longer to complete compared to bankruptcy. By reducing your debt through a Consumer Proposal and decreasing your payments, it can often take longer than bankruptcy to pay enough to the LIT for your creditors to accept the Consumer Proposal.
Another disadvantage is that a Consumer Proposal does affect your credit rating. When considering a Consumer Proposal, it’s important to note that an R7 rating will be applied to your credit report and it will remain there for three years after the Consumer Proposal is paid in full. This may impact your ability to access credit in the future.
Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee. We have assisted thousands of individuals file and successfully complete Consumer Proposals. We will explain the benefits and drawbacks of both bankruptcy and a Consumer Proposal and help guide you to a solution that is best for you. Our passion – our mission – is your health and well-being!