Nearly half of Canadians are just $200 away from being unable to cover their monthly financial commitments. In today’s economic climate, even a minor unexpected expense could lead to debt — leaving you to consider your next steps.
If you’re in debt but want to protect certain assets and are concerned about the long-term financial effects of Bankruptcy, you might want to explore the benefits of a Consumer Proposal. This alternative solution could offer you a fresh financial start.
Let’s explore what a Consumer Proposal entails and the benefits of a Consumer Proposal, as well as its drawbacks.
What Is a Consumer Proposal
A Consumer Proposal is an alternative to Bankruptcy. The process starts with a Free Confidential Consultation with a Licensed Insolvency Trustee (LIT). LITs are expert debt management professionals and the only ones authorized to file Consumer Proposals and Bankruptcies.
During the consultation, the LIT will assess your financial situation and help you navigate through options such as Personal Bankruptcy in Toronto if necessary. If you decide that the benefits of a Consumer Proposal are the right solution for your debt, the LIT will assist you in preparing the Proposal for your creditors. If you’re looking for consumer proposal services in Toronto, Kunjar Sharma will guide you through the process, ensuring your creditors receive a fair offer.
For the Proposal to proceed, most of your creditors must agree to its terms. You will then make affordable monthly payments to your creditors. Once you have completed the terms of your Proposal, you will receive a Certificate of Completion and be released from most of your debts.
Let’s explore some consumer proposal pros and cons.
Pros of a Consumer Proposal
There are several benefits of a Consumer Proposal — for instance, it stops and prevents further legal actions from your creditors, allows you to retain your assets, and requires you to repay less than what you owe.
We’ve outlined the benefits of a Consumer Proposal below to help you assess if it’s the right solution for your situation:
- Collection actions from your creditors are immediately halted.
- No additional interest is added to your debts.
- Monthly income and expense reports are not required.
- You retain all your assets and tax refunds.
- You repay less than what you owe.
- It offers a higher recovery to creditors than a Bankruptcy.
- Your monthly payment is fixed, so you won’t have to make higher payments if your income increases.
- If you have student loans, a Consumer Proposal will pause active collection, although interest will continue to accrue.
- Creditors approve the Proposal at the start, with no court hearing needed to determine if your debts are discharged.
- Payments are set according to your financial means.
- If you’ve declared Bankruptcy before, a Proposal will have less impact on your credit report than filing for a second Bankruptcy.
- You can keep credit cards with no balances.
- Budgeting and money management counselling are provided throughout the process.
- You have the option to pay off the Proposal early by increasing your payments or making a lump-sum payment.
Let’s look more in-depth at how effective a consumer proposal can be to eliminate debts.
You Keep Your Assets With a Consumer Proposal
One of the primary benefits of a consumer proposal is that it safeguards your assets. Unlike bankruptcy, where non-exempt assets must be surrendered, a consumer proposal allows you to retain all your assets, including tax refunds, investments, and home equity. This makes it a strong debt consolidation option for homeowners facing significant credit card debt and other unsecured obligations.
You Can Avoid The Surplus Income Penalty
Bankruptcy includes a surplus income provision, meaning that the more you earn, the higher your bankruptcy payments will be, which can make them unaffordable. In contrast, one of the benefits of a consumer proposal is its fixed payments that do not increase, even with a rise in income. This feature makes it a strategic choice, particularly if you have a higher household income or anticipate an income increase.
Consumer Proposals Mean Lower Monthly Payments
A key benefit of a consumer proposal is the ability to negotiate repayment for only a portion of your debt, often reducing the amount owed by up to 70%. This makes it an excellent debt consolidation option, as creditors typically accept proposals that offer more than what they would receive in a bankruptcy. Additionally, interest is frozen during the consumer proposal, leading to substantial savings compared to a debt consolidation loan or second mortgage.
You Get Creditor Protection
As a legally binding process under the Bankruptcy & Insolvency Act, a consumer proposal offers protection from creditors through a legal stay of proceedings. This stay halts collection calls and wage garnishments immediately upon filing. Once the majority of your creditors approve the proposal, it becomes binding on all creditors.
You Avoid Bankruptcy
For many, one of the most compelling benefits of a consumer proposal is the ability to achieve debt relief without the stigma of bankruptcy. It’s a preferred option for those who wish to repay what they can and want to avoid the potential impact on employment or professional certifications that bankruptcy might cause. Discussing this safe alternative with a Licensed Insolvency Trustee can provide clarity and peace of mind.
Cons of a Consumer Proposal
It’s essential to consider the disadvantages along with the benefits of a Consumer Proposal before deciding if it’s the right solution for you. For instance, a Consumer Proposal generally takes longer to repay, you cannot file another Proposal if you miss three payments, and it will be noted on your credit report.
We’ve summarized the drawbacks to help you make an informed decision about the best debt solution for your situation:
- If the majority of your creditors reject the Proposal, you may need to file for Bankruptcy.
- Repayment typically takes four to five years, which is longer than a typical Bankruptcy.
- Payments are fixed, and any changes to the payment amount require amending the Proposal and undergoing the voting process again.
- Defaulting on the Proposal by falling three months behind in payments means you cannot file another Proposal until the debts included in this one are fully paid.
- A Consumer Proposal appears on your credit report and negatively affects your credit score for three years after completion.
- Rebuilding your credit score after completing the Proposal may be challenging, as some financial institutions view a Proposal on your credit report as similar to Bankruptcy.
- You must have less than $250,000 in debt (excluding your mortgage) to file a Consumer Proposal. Still, if you’re facing mortgage insolvency, it’s important to explore all available financial solutions with a Licensed Insolvency Trustee.
Conclusion
Filing a Consumer Proposal is the first step toward a debt-free future. However, it’s crucial to weigh both the benefits of a Consumer Proposal and its drawbacks before proceeding to ensure it aligns with your needs. If you’re struggling with credit card debt in Toronto, or seeking assistance with Personal Bankruptcy in Toronto bankruptcy counsellors in Toronto. can guide you through your options and support you on your path to a fresh financial start. Don’t delay in taking charge of your financial future.
