A consumer proposal is a legal process where you make an offer to your unsecured creditors to repay only a portion of what you owe. In a Consumer Proposal, you do not have to declare Bankruptcy. When you file, your debts are significantly reduced to the amount of the offer that the creditors are prepared to accept over a five-year period. In addition, you can keep your assets as long as you continue to make payments on your secured loans related to those assets.
The benefits of a consumer proposal and the disadvantages will depend on your specific financial situation. If you are considering the pros and cons, know that each situation is unique.
However, the chart below represents some of the advantages of a consumer proposal as well as some potential negatives.
Advantages Of A Consumer Proposal
Affordable Debt Repayment
In a consumer proposal, you only pay your unsecured creditors a portion of what is owed to them and your remaining outstanding debt is eliminated.
Only The Majority Of Your Creditors Must Accept
If the creditors holding more than 50% of the outstanding debt agree to the terms of the proposal, then all unsecured creditors are bound by the proposal.
Legal Protection From Creditors
Once you file, none of your unsecured creditors can take legal action against you to collect on the debt and existing legal action must stop.
Communication Is Handled By The Licensed Insolvency Trustee
You will not have to worry about communicating with your creditors once the proposal is filed.
Your Assets Are Protected
You are able to keep all of your assets when you file a consumer proposal. None will be sold to pay your creditors.
No Surplus Income Charges
Once your proposal is accepted, the amount you have to pay back is fixed even if you get surplus income.
Your Credit Rating Could Be Affected
A consumer proposal is noted on your credit report. However, if you already have bad credit from missing debt payments, there’s a good chance your credit rating is already negatively affected
Only Unsecured Debts Can Be Included
A consumer proposal cannot include secured loans such as mortgages or automobile loans. However, a proposal makes it easier to pay off unsecured debt (such as credit card debt) which can free up money so that it becomes easier to meet your other financial commitments
Student Loans May Not Be Included
Student loans can only be included in a consumer proposal if you have been completely out of school for at least seven years
A Consumer Proposal May Take Longer
Typically, it takes longer to complete a consumer proposal than a bankruptcy
Each person’s financial situation is different and there is not one option that is 100% right for everyone. If you are struggling with debt and looking to improve your financial situation, you should speak with a Licensed Insolvency Trustee. A Trustee will review your financial situation and give you the information you need to make an informed decision.
If you decide to proceed with a consumer proposal, the Trustee will determine what a fair offer to your unsecured creditors will be. They will then be able to vote on whether they wish to accept the terms. If those creditors who are owned more than 50% of the debt vote to accept the proposal, then all are bound by its terms. This is a significant consumer proposal advantage as you do not need all unsecured creditors to agree for the proposal for it to be legally binding.
Any garnishment of your wages by a creditor (such as the CRA) will be stopped at the time your filing is registered with the government. And all unsecured creditors will have to stop any collections actions they have against you as well. You will also not have to deal with calls from your creditors and collection agents as long as you make the proposal payments. All communication will be handled by the Licensed Insolvency Trustee.
Best of all? All future interest and penalties stop accumulating upon the filing of your Proposal.
Because your monthly payments to your creditors are usually made over a five-year period (a time period that can be shortened by you if you are able to make additional payments over time), this provides you with more flexibility to cover your normal monthly living expenses