In Debt? How a Consumer Proposal Can Help
Many Canadians are over burdened with debt. In fact, household debt is at an all-time high in Canada. The debt to income ratio in Canada has reached a record 163%. This is 20 percent higher than it was in 2008. This number means that the average Canadian household has $1.63 in debt for every dollar of disposable income. It shows that many Canadians are relying on credit to make purchases.
Other statistics show us that Canadians are unable to keep up with their debt. The number of insolvencies in many provinces has gone up. For example, Manitoba and Saskatchewan saw the number of insolvencies increase by 11 percent in the six months ending in February 2015. The number in Alberta rose by 6.5 percent and it rose by 6 percent in Quebec.
A person is considered insolvent when their liabilities (what they owe) exceeds the value of their assets and he or she is unable to pay bills as they become due. Most people who become insolvent end up filing for bankruptcy or consumer proposal. These are both options that can help a person who is overwhelmed by debt, to begin to discharge their debts.
What is a Consumer Proposal?
A consumer proposal sees a person make an offer to his or her unsecured creditors that involves the person paying less than the total amount due over a period of time. This lesser amount is based on each person specific situation and includes an assessment of your monthly income, monthly reasonable living expenses, the number of people in your family and the value of your assets. Once the proposal is complete and all agreed-upon payments have been made, the remaining outstanding debt is discharged as part of the terms of the proposal.
How a Consumer Proposal Works
If you have high levels of debt, are in over your head and cannot pay back your creditors, a consumer proposal may be an option for you. Here is some information on consumer proposals and how they work.
A consumer proposal must be filed by a licensed insolvency trustee. Don’t let the name confuse you. These licensed professionals are not just used to file bankruptcy. They are able to file consumer proposals as well. A debt settlement company or a financial advisor cannot file a consumer proposal. Only a licensed insolvency trustee is legally able to do this.
Most bankruptcy trustees offer free consultations. The first step to filing a proposal is to schedule a consultation with a trustee. He or she will review your current financial situation and provide you with information on the options that are available to you. One of these options may be a consumer proposal.
If you decide that a consumer proposal is the best option for you, the trustee will determine what a fair offer to your creditors will be. This is based on your current debts and financial position. Keep in mind that a consumer proposal can only be submitted to unsecured creditors. Secured debts cannot be included in a consumer proposal. Examples of unsecured debts are credit cards, lines of credit, personal loans, overdrafts on checking accounts and other similar debts. Secured debts are debts such as mortgages and automobile loans. If you are having difficulty paying these debts, you will need to speak with these lenders individually.
Once the proposal is prepared and sent to your unsecured creditors, they have 45 days to vote on it. If it is accepted by the majority of your creditors, then all of your creditors are bound by it. This is an advantage of a consumer proposal over other types of debt relief such as debt settlement. With these other methods, you will need to speak to your creditors individually and negotiate with each of them separately.
It’s also important to note that you receive protection from your creditors when you file a consumer proposal. Any legal action that they have started against you will stop, as will any wage garnishments. In fact, your creditors are no longer able to contact you directly and this includes collection agencies. All communication with your creditors will be done by the bankruptcy trustee. This often comes as a great relief to people as those who have struggled with debt for quite some time as calls from creditors and collection agencies can be incredibly stressful and unpleasant.
If you are having financial issues and struggling with debt, a consumer proposal could be an option for you. Speaking with a trustee in bankruptcy can help you figure out if this option will work in your situation.