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Consumer Proposal

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Rebuild Bad Credit Faster If You Pay It Down Sooner

Rebuild bad credit faster if you pay it down sooner!

Most lines of credit and personal loans have all sorts of conditions attached to them. Some loans penalize you for paying them down early (including many mortgages). Other loans come with hefty interest charges, that make paying them down close to impossible. But a Consumer Proposal comes with no such conditions, fees or penalties.

One of the major benefits of filing a consumer proposal, rather than a Bankruptcy, is the freedom you have to end it earlier (by paying it off ahead of the deadline date). And unlike some of those expensive loans, a Consumer Proposal can be paid down earlier with no penalty charges or interest. In fact, we encourage you to pay down a Consumer Proposal as quickly as possible, so you can receive your Certificate of Completion earlier and use it to clear up your credit rating.

Consumer Proposal Case Study

Let’s take a look at a hypothetical client’s Consumer Proposal offering. We will call our Proposal debtor Shane. In our scenario, Shane has been burdened for years with crippling debt. He has a middle management position that has allowed him to pay some of his debts. but still kept him from completely clearing up his debt load.

Tired of battling to pay down this ever-growing sum, Shane met with us and made the decision to offer his creditors a settlement of $20,000 over five years (which works out to approximately $333 per month, for 60 months).

Because Shane had a mid-range income (higher than the average wage earner), he was required to pay more to his creditors. This is known as Surplus Income: that portion of an individual’s income above the allowable income threshold, as determined by the standards established by the Office of the Superintendent of Bankruptcy. The combination of his surplus income ($13,000) plus his non-exempt assets (a GIC valued at approximately $3,000) means that his creditors would have received an amount close to $16,000 from Shane if he had filed for bankruptcy protection (with payments to be made over a 21-month period of approximately $762 per month).

This monthly amount would have been far too arduous for Shane to pay out on his existing monthly paycheque. Therefore, he opted to streamline his monthly cash flow by stretching out his proposal payments over a five-year period, offering a bit more to his creditors than they would have received in a bankruptcy, in the hope they would vote in favour of the Consumer Proposal. Thanks to his Consumer Proposal, Shane now has to pay $429 less per month in comparison to a Bankruptcy, and far less compared to his initial debt.

The result? Shane ended up with far more manageable payments, stretched out over a longer period of time. In addition, the creditors liked the “sweetened” deal he offered them over what they would have received if Shane had opted to file for Bankruptcy.

Getting his proposal accepted by his creditors gave Shane the relief from his debt problems that he needed. Without all of the financial stress wearing him down, Shane was able to focus on the task of locating a new job with a better annual salary.

Now, if Shane had filed a Bankruptcy, this sizable increase in monthly income would have been problematic, because his surplus income would have also gone up. But by filing a Consumer Proposal, Shane’s payments to the Insolvency Trustee remained exactly the same. This was because, when Shane’s creditors voted in favour of accepting his proposal terms by the 45-day mark (and with Court approval 15 days later), the payment amount was locked in and Shane does not have to pay more when his income increases.

Once Shane began to thrive at his new job, he found he had more money in the bank each month after paying his Consumer Proposal fees and monthly living expenses. More money meant Shane had the ability to offer the Insolvency Trustee a series of lump-sum payments that, within a year, resulted in Shane paying off the balance owing on his Consumer Proposal and receiving his completion certificate. To the delight of his creditors (and himself) he had successfully completed his Consumer Proposal in less than the standard five-year time frame agreed-upon by his creditors.

Approximately 3 years following completion of his Consumer Proposal, Shane’s credit rating rose to R1 (the best rating available) and his old debts vanished from his credit report. Shane was debt-free, had cash in the bank, and a good credit rating again. He was on the road to a stress-free financial future.

A Debt-Free Future Is Within Reach

Shane’s tale is not unusual – the Consumer Proposal process is designed to be straightforward and simplified, especially when compared to a Bankruptcy.

Getting a Certificate of Completion from the Trustee should be your ultimate goal. Once that piece of paper is in your hands, and you’ve notified the main credit bureaus of the successful completion of your Consumer Proposal, you can begin to rebuild your financial life and use credit responsibly and carefully.

That’s the ultimate goal: A fresh start that allows you to put your debt worries behind you and move ahead with new confidence.

Schedule Your Free Debt Relief Consultation

To find out more about how a Consumer Proposal could be a great solution for your financial pressures, please contact us for a free debt relief consultation. We will explain all available debt relief options to you in detail at one of our 50+ offices located across Southern Ontario.