Pros And Cons Of A Consumer Proposal
In business, things may not turn out the way you expect them, and this may leave you drowning in debt. You might be going through a tough divorce that will leave you both emotionally and financially strained.
Also, you could have gone through a tough accident that may leave you disabled and not able to perform to your level best. This can cause a strain to your business and cause you to have setbacks.
Paying all the debt you have accumulated over the years may leave you financially and physically strained and exhausted. You can always opt for a Consumer Proposal or to file for bankruptcy. This will help you clear your debts and try to recreate your business.
Pros of a Consumer Proposal
Allows you to keep your assets
A Consumer Proposal allows you to keep all your assets; thus when you are drafting the Consumer Proposal plan, your assets are protected and are not part of the deal. This includes your home, cars, any investments and any tax refunds.
This means that your assets are not part of your Consumer Proposal and your creditors can’t touch them. This helps a lot in case you are not able to meet the Consumer Proposal deadline.
You can avoid surplus income
When you file for a Consumer Proposal, you avoid paying any additional income as the deal is settled on how much you must pay to clear your debt. Unlike when you file for bankruptcy, the more money you make, the more you pay.
With Consumer Proposals, the amount of money you pay does not change even when your business gets back on its feet, and you have more income. If you have expectations that your income will increase it is better you apply for a Consumer Proposal than bankruptcy.
You can avoid bankruptcy by filing a Consumer Proposal instead. A Consumer Proposal allows you to keep your assets still and plan of how to pay for the debt. You must show your creditors that although you will pay less of their original debt, you are offering a better deal to them with a Consumer Proposal as compared to filing for bankruptcy.
This will make them be confident and agree on having the proposal instead. This will give you the go-ahead to implement the proposal.
You get creditor protection
One of the biggest problems that people face when they are deeply in debt is the constant calls by creditors to pay their debt. Once your Consumer Proposal is approved it legally binds all the creditors, and this ensures that you don’t get harassed by anyone when they want to collect their debt. However, you must ensure you also do your part and pay for what you had agreed.
The proposal protects you against all wage garnishments and collection calls from creditors. You can relax and work on a plan to ensure that your business does not go under the drain and you cover your portion of the debt.
Lower monthly payments
When applying for a Consumer Proposal, you argue your way into paying less the debt you owe your creditors. If this is approved, you find that you can lower all your monthly payments. For example, if a creditor agrees to 75% of what you owe them, then this means that you save 25%.
You can put the money you save towards an investment, building up your business, or paying other debts. You will be surprised as to how much you can save and how relieved you will feel. Having a Consumer Proposal is one of the safest and easiest debt consolidations plans you can have.
Interest and charges
All charges and interest arising from your unsecured debts within the Consumer Proposal are generally not applied if you abide by the repayment plan. Even those unsecured creditors who object to the Consumer Proposal cannot instigate any proceedings against you either.
Financial stability in 60 months
Your Consumer Proposal normally lasts for only five years, unlike normal debt that can feel like a permanent heavy weight on your shoulders for years on end. With a Consumer Proposals you know after five years that you will be discharged from the remainder of your debt and you can start again with a clean slate.
Cons of a Consumer Proposal
Lowers your credit rating
Even though having a consumer plan will help you out in repaying your debt and clearing all your books with your creditors. It will still lower your credit ratings in that the creditors will not trust you enough to loan you money. This can affect your business in future as people will be afraid to invest in your business.
This also happens if you file for bankruptcy as people will be aware that you may not be able to pay their debts in full. This may not be a problem to many since you probably have bad credit rates due to missing out on some debt payments.
Only covers unsecured loans
Having a Consumer Proposal will only cover and help you clear unsecured loans. This includes credit card debts and personal loans. They don’t cover secured loans like mortgage, car and any other type of secured loans. This means if you are having trouble paying your mortgage you must consult your lenders separately and come up with a plan on how to pay.
Additionally, your student’s loans are only included in the Consumer Proposal if you have been out of school for more than seven years, and you still haven’t cleared the debt.
Takes longer than filing for a bankruptcy
When you file for a Consumer Proposal, you must come up with a plan on how you will pay for the debt which usually takes you a long time. You end up paying a small amount of money over a prolonged period.
However, when you file for bankruptcy, the debt is cleared faster, and you are relieved from your creditors. However, the best thing about the Consumer Proposal is that you can pay your debt when your income increases. This allows you to pay off your debt faster and early.
Forced to declare bankruptcy if you miss payments
If you miss more than two payments in a row, you might be forced to file for bankruptcy. Since you can’t file for a second Consumer Proposal filing, then bankruptcy is your next option. This decision ends up pushing you back, and it is often hard to recover from. You need to be careful when filing for a Consumer Proposal and plan of how you will pay your debt.
Sometimes your business can be facing some challenges, and you are required to file for a Consumer Proposal. This will help you clear the debt you have to the creditors and have a great relationship with them. If you fail to honour the Consumer Proposal monthly payment arrangements, then you will be forced to apply for bankruptcy.
Although, this will probably lower your credit ratings and disqualify you from getting reasonable amounts of loans in the future.
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.