Advantages And Disadvantages Of Filing A Consumer Proposal
A consumer proposal allows you to make an offer to your creditors where you propose to pay them on terms that you can afford. Generally, a consumer proposal can extend the period of time that you have to pay down your debt, reduce the overall amount that you are expected to pay, or both. In many situations, you offer to pay a portion of what you owe in monthly payments over a specific period of time. Once the proposal is complete, the remaining outstanding debt is forgiven.
Many people who are considering debt relief options are interested in consumer proposal pros and cons.
As with nearly all financial matters, there is no universal solution that works for everyone in absolutely every situation. Every financial situation is unique and, therefore, different options work for different people. Therefore, any list of consumer proposal pros and cons is not universal. Different factors will matter more to certain people depending on their financial situations. However, here are some factors that are typically considered advantages and disadvantages of a consumer proposal.
Consumer Proposal Pros
The main advantage is that a consumer proposal allows you to repay your debt on terms you can afford. If you decide to file a consumer proposal, it must be done through a trustee in bankruptcy who will act as a proposal administrator throughout the process. The trustee will review your financial situation and determine what a fair offer to your creditors will be.
This offer is then sent to all of your unsecured creditors. They will then have 45 days to decide whether or not they wish to accept your proposal. If the majority of your creditors vote to accept the offer, then all of your unsecured creditors are bound by its terms.
A consumer proposal makes it possible for a person who can repay some of their debts to do so while eliminating the remaining outstanding debt. By including all unsecured creditors, you avoid having to individually negotiate with each creditor.
Another consumer proposal advantage is that you receive legal protection from your creditors. Once your proposal is filed, no unsecured creditors can take legal action against you to collect their debts. They cannot garnish your wages and any wage garnishments that are in place must stop. In fact, creditors are not even able to contact you. This means that calls from creditors and collection agencies will stop. This is a big relief to many people. All communication with your creditors will be done through your bankruptcy trustee.
Consumer Proposal Cons
As mentioned, each financial situation is unique. However, there are some aspects of a consumer proposal that can be considered disadvantages. The main issue that many people are often concerned about is the impact that a consumer proposal has on your credit report. When you file a consumer proposal, a note is made on your credit report. This note remains for three years after the proposal is complete.
While this can make it more difficult to get favourable loans, it’s important to consider the situation that you are in. If you are in a situation where filing a consumer proposal makes sense for you, you have likely already missed some debt payments or paid bills late and your credit score will already have been downgraded to reflect this. This impacts your credit report as well. A consumer proposal, however, puts you in a situation where you can eliminate your debt through payments that you can afford and then rebuild your credit.
Another potential disadvantage is that a consumer proposal can only include unsecured debt such as credit cards, unsecured lines of credit and personal loans. If you are having difficulty paying your mortgage, automobile loan or other type of secured loan, you will need to speak with these lenders individually.
In addition, student loans can only be included in a consumer proposal if you have been out of school for at least seven years.
When it comes to making a choice for your financial future, it makes sense to consider consumer proposal pros and cons as well as other options that are available to you. Meeting with a trustee in bankruptcy can help you understand the potential options so that you can make an informed choice.