What is a Consumer Proposal?
When you’re feeling drowning with your debts and that you’re incapable to pay it in full, you might find refuge in filing for bankruptcy. As bankruptcy eliminates your unsecured debts, it enables you to rebuild your finances for the second time in your life. However, before you end up filing for bankruptcy, it is imperative to consider all the debt solutions possible. A consumer proposal, for instance, serves as the most common debt relief option that Canadians consider before filing for bankruptcy.
Basics of Consumer Proposals
In Canada, consumer proposals are administered by the Bankruptcy and Insolvency Act of 1985. When you file for a consumer proposal, you can settle to pay less than what you owe from your creditors. This means that you will no longer carry the burden of your large debts. To qualify for a consumer proposal, your debt should not be lesser to $1,000 and over $250,000 for a single individual. Additionally, if you file for a joint consumer proposal, the maximum debt levels should not be over $500,000 of unsecured debts.
When deciding to file for a consumer proposal, you need to reach out to a licensed bankruptcy trustee. Your trustee will administer an assessment fo your financial situation and will prepare the proposal once you qualify. As soon as you file for a consumer proposal, your debts will no longer stack interest unless your creditor did not accept the proposal. Significantly, a good consumer proposal, which is expedient to both you and your creditor will likely to be accepted.
The Consumer Proposal and Your Creditors
A consumer proposal is a legally binding agreement that binds all your creditors to its arrangements when the majority of the creditors who hold a significant amount of your total debt agree to the proposal. In a consumer proposal, the key factor that you need to consider is your total debt.
Moreover, though several creditors decline your proposal, if they only hold 49% or lesser than your total debt, they are still obliged to comply with the proposal’s terms. This can happen if the creditors with 51% or more of your debt agree to the arrangements or provisions. Thus, it is important to create a proposal that is amenable to your creditors that you owe the most. Getting their approval will surely prosper your consumer proposal to take place.
Consumer Proposal Advantages and Disadvantages
As compared with debt settlement or debt consolidation, a consumer proposal has several negative aspects. In contrast, however, it also has positive aspects, which makes it more preferable for someone who’s on the verge of filing for bankruptcy.
- Your minimum payment each month is lowered with its interest in ceased. Most of your debt will also be forgiven.
- Your assets will be protected; thus, creditors or lenders cannot seize them or even trim your wage.
- Once a consumer proposal in on the run, debt collectors can no longer harass nor contact you.
- A consumer proposal only handles your unsecured debt. It does not help you with any issues with protected debts.
- It also concerns public records and is supervised by the same court as a bankruptcy.
- Your trustee is obliged to compensate your creditor as much as you can furnish. At some point, you and your trustee might not disagree on the set amount.
- A consumer proposal also impacts your credit rating; however, lesser than the impact of bankruptcy. You’ll get a rating of R7 in a consumer proposal, which can affect your credit application or loan extension for at least 3 years.
It is always recommended for you to speak to a reliable debt counselor to determine the best option for you. So, this can be the chance for you to find a way out from indebtedness, just simply check to see if you qualify.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.