Your trustee in a consumer proposal will want to know how much of an offer you can make to your creditors based on your financial situation. To help your creditors decide whether to accept your offer or ask for more money, the creditors will include a copy of this budget in the statement of affairs package you send to them.
In this article, I’ll discuss the budgeting process involved in submitting a consumer proposal and how doing so can help you regain financial stability.
Proposal Filing Cash Flow Considerations
The thought of ever having enough money is difficult to entertain when you’re having money problems. Today, it’s possible that your income is insufficient to cover your regular monthly outlays, which likely include things like rent or mortgage, car payments, food, clothing, utility costs, insurance, and so on. Usually, this happens when debt payments consume a large portion of an individual’s income.
Some people turn to credit cards when money is tight, but paying just the minimum each month won’t help you get out of debt.
You must devise a strategy to deal with your debts to alleviate your anxiety and start over with a clean slate. However, a consumer proposal can ensure that your new plan is financially sustainable.
Why Budget is Essential
The primary concern when evaluating a consumer proposal is whether or not the monthly payments are affordable.
Your trustee will evaluate your monthly expenditures to ascertain if the cost of your consumer proposal is manageable.
A consumer proposal will shield you from creditors and halt interest fees, but it must provide more for your creditors than bankruptcy would. However, this assumes that you have sufficient financial resources to meet the monthly obligations. For this, you’ll need to consult your financial plan.
Your trustee will analyze your finances to determine which costs will be eliminated (such as credit card payments) and where else you can reduce spending to make ends meet.
Uncertainty about whether or not you can afford the proposal’s monthly payments is likely to cause you stress. As the law only allows you to miss two monthly payments throughout the proposal, skipping payments is risky.
Any agreement is null and void after the third missed payment. Once your proposal is deemed null and void, you no longer enjoy the protection from creditors that it provided.
That’s why it’s crucial to plan and be forthright with your trustee about your financial situation. You can ensure your proposal is feasible from the get-go with the help of a budget, increasing the likelihood that you will be awarded your Certificate of Completion and, in turn, pay off all of your outstanding debts.
Preparing a Consumer Proposal Budget
To assist your trustee in preparing your consumer proposal, RismanZysman will send you a link where you can enter some of your income and expenses. Some things you’ll want to include in your budget, though, are the following:
Income Items
- Pension income
- Employment income
- Government benefits (child tax, welfare, disability)
- Child support or alimony
- Other income
Note: Only your after-tax net income is required if you are self-employed or run a business after paying necessary expenses. When reviewing your consumer proposal, your trustee will need this information to consider your household budget.
Expense Items
Home
- Cable and Internet bills
- Furniture
- Telephone or cell phone bills
- Property taxes
- Rent or mortgage payment
- Utilities
- House insurance
Travel Costs
- Gas
- Car repairs and maintenance
- Vehicle insurance
- Car loan and lease
- Plate renewals
- Public transit
Living Expenses
- Laundry/dry cleaning
- Grooming/toiletries
- Clothing
- Food & groceries
- Alcohol
- Entertainment
- Smoking
Health Costs
- Prescriptions
- Dental
- Life insurance
- Disability insurance
Other Expenses
- Memberships
- Gifts/allowances
- Child care/babysitting
- Pet care
- Banking fees
Set aside as much money each month as you think you’ll need to pay for annual expenses like memberships, insurance, or holiday gifts.
Getting Rid of Current Debt Repayment
Your consumer proposal budget does not include monthly debt payments other than secured loans like your mortgage or vehicle finance. If you want to keep these assets, you must make these payments. Thus they’re in your budget.
A consumer proposition eliminates unsecured debt. Your negative budget is likely due to credit card minimum payments, high-interest installment loans, and payday loan repayments.
When proposing to creditors, your trustee will consider your income minus costs before debt repayment. This number is optimistic. If not, your trustee can suggest ways to lower your expenses, or you can return a costly car to balance your budget.
Your trustee needs a list of your debtors. Your trustee will determine the minimum proportion based on your debts and creditors. You can compare this to your budget to determine what you can afford.
Why a Consumer Proposal is Preferable Versus Bankruptcy
You may be skeptical that this is a prudent financial move once you realize that your debtors will receive a larger payment.
A person’s ability to remain bankrupt is tied to their disposable income. According to bankruptcy laws set by the government, the more money you make, the longer you will have to make payments.
If you declare bankruptcy for the first time and have any surplus income payments, you must remain bankrupt for the full 21 months. There is no room to adjust the duration of this time frame. The result may be a monthly bankruptcy payment that takes up a large chunk of your income.
The maximum repayment period for consumer proposals is five years. Paying over the entire 60-month period can reduce your monthly instalment amount. In the future, this may determine your financial stability and ability to meet your basic needs.
Post-Consumer Proposal Budgeting
After filing your consumer proposal, you will have to go to two credit counselling sessions. One of these sessions will be about how to make a budget and stick to it.
When you file a consumer proposal, the main goal is to get rid of your debt. The second goal is to make sure that you don’t have to rely on credit to pay for everyday living costs in the future.
A consumer proposal can help you start over, and you can now work on saving money for the future.
Talk to Us About Consumer Proposals!
A consumer proposal can remove your debt, allow you to preserve your assets, and help you get back on track financially.
Contact us if you need help getting out of debt, and we’ll give you a free debt assessment during which we’ll look over your finances, advise you on how much you can afford to pay and help you formulate an offer to present to your creditors.