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Is a Consumer Proposal a Scam? Myths vs the Truth

Whenever a member of the Farber Debt Solutions team meets with a potential client to review the options available to them to help with their financial difficulties, part of the discussion covers the advantages of a Consumer Proposal. Most clients have never heard of a Consumer Proposal and its benefits, and assume that other than a consolidation loan, a bankruptcy is their only option to deal with their debt issues. 

After explaining the various benefits of a Consumer Proposal, we often see skepticism on the faces of our clients. Others are even convinced there’s a trick to the process and believe it’s not possible that such a program can be legitimate.  

Education is essential when you are considering filing for protection from your creditors. So, with that goal in mind, let’s clarify a few misconceptions.

MYTH: “This is just a consolidation loan in disguise.”  

TRUTH: We are not a lender.

While a Consumer Proposal and a consolidation loan may appear similar in nature given that they both combine all your debts into one payment, a consolidation loan takes you further into debt as all of your small individual debts are now one big loan. Whereas a Consumer Proposal helps you settle your debts fairly and affordably based on your specific budget and personal circumstances. Farber will negotiate with your creditors to get up to 70% of the debt you owe forgiven. 

The total negotiated amount is then paid over a maximum of five years by making affordable monthly payments.  The best part is the offer to your creditors (the people you owe money to) and the total amount paid is interest-free! And, unlike most consolidation loans, you can pay your Consumer Proposal off early without any penalties and put an end to all your loans.

MYTH: “These people are scammers trying to take your money.”  

TRUTH: Only a Licensed Insolvency Trustee (LIT) can legally file a Consumer Proposal.

A Consumer Proposal is a Government of Canada legislated and managed program, created for your protection. Insolvencies are overseen by Innovation, Science and Economic Development Canada and are administered by Licensed Insolvency Trustees, under their supervision.  

The internet is full of misinformation and disinformation. The best thing you can do before you decide to file any type of insolvency or debt settlement is to visit the Office of the Superintendent of Bankruptcy (OSB) where you can explore the resources of a reputable Government of Canada website. You can even review the actual Bankruptcy and Insolvency Act to see for yourself how debt is dealt with in a Consumer Proposal under Canadian law.

MYTH: “When things are too good to be true, they are. Nothing is interest-free”  

TRUTH: Once a Consumer Proposal is filed, the balance owing as of the time of filing is frozen, with no additional interest to be added while you are protected by the regulations of this government program.

Imagine a Consumer Proposal as a massive wall (otherwise known as the Bankruptcy and Insolvency Act) that stands between you and your creditors. The Licensed Insolvency Trustee guards that wall, ensures no further interest accumulates, collections calls stop, and that all legal actions cease. The truth is, interest accumulation does indeed stop from the moment a Consumer Proposal is filed.   

For example, the Canada Revenue Agency (CRA) may continue to mail out regular statements to someone who owed income tax or GST/HST, with interest added to each statement.  But as soon as the Consumer Proposal is filed, the CRA is prevented from adding additional interest and penalties to the debt that is included in the Consumer Proposal. 

It has been said: “An educated consumer is our best customer.” At Farber Debt Solutions, we completely agree and want to make sure that you’re as educated as you can be about this process before you embark on your financial fresh start. Ready to chat about your financial future? Contact us today for a free consultation. At Farber Debt Solutions, we’re here to help.