Table of Content
- Why File a Consumer Proposal?
- Top Advantages of Consumer Proposals
- You Keep Your Assets With a Consumer Proposal
- You Can Avoid The Surplus Income Penalty
- Consumer Proposals Mean Lower Monthly Payments
- What Are the Risks of Consumer Proposals?
- When Is Bankruptcy Better?
- Who Can Provide the Best Guidance for Consumer Proposal?
Why File a Consumer Proposal?
When people are faced with overwhelming debt, they often turn to consumer proposals to get back on their feet. Consumer proposals are formal agreements between borrowers and their creditors that allow the borrowers to repay their debts over time. This can be a helpful solution for those stressed to make ends meet.
There are a number of reasons why you might want to file a consumer proposal. For example, perhaps you struggle with debt and can’t find a solution to repay your loan. Maybe you have been contacted by a collection agency and don't know what to do. Or, maybe you just want to find a way to avoid the embarrassment after filing bankruptcy. Whatever the reason, a consumer proposal may be the right solution for you! However, just like all other debt relief options, you still need to weigh the consumer proposal pros and cons to understand if it’s the best choice for your case.
Top Advantages of Consumer Proposals
A consumer proposal is considered the number one solution to avoid bankruptcy. People who qualify for this debt relief program enjoys a list of benefits, including:
- The unique debt settlement negotiation will allow you to reduce your debts by up to 70%.
- You can make manageable payments.
- You only need to pay a portion of your total debts.
- A consumer proposal allows you to make monthly payments that are based on what you can afford.
- You’ll have a single monthly payment instead of many.
- You can keep your assets. Unlike bankruptcy, a consumer proposal does not require giving up your assets.
- The interest on your debts is frozen.
- You can get relief from harassing phone calls and letters. Once you have filed a consumer proposal, your creditors are required to stop contacting you.
- Fix payment terms
- Your creditors cannot sue you. Creditors cannot take legal action against you once you have filed a consumer proposal.
- You can avoid bankruptcy, and it allows you to stay out of court and keep your assets.
If you’re still wondering, is a consumer proposal worth it, we’ll give you an in-depth understanding of what it offers to people who struggle with their debts.
You Keep Your Assets With a Consumer Proposal
A consumer proposal helps you keep your assets in two ways. First, it stops your creditors from taking legal action to recover what you owe them. This includes seizing your assets, such as your house or car. Second, a consumer proposal allows you to keep all of the money you earn and all the property you own throughout the duration of the proposal. This is true even if you have debts that are more than what you can afford to pay back.
When you file a consumer proposal, an insolvency trustee is appointed to negotiate with your creditors on your behalf. The trustee will work out a repayment plan that is affordable for you and allows you to keep your assets.
You Can Avoid The Surplus Income Penalty
Surplus Income Penalty is the amount of money that a person receiving benefits must pay back if their income exceeds a certain level. If you are dealing with debts, the more you earn, the higher your bankruptcy payment will be.
A consumer proposal can help you avoid the surplus income penalty. If you file a consumer proposal and get approved, your payments will be based on your reasonable monthly expenses rather than your average income over the last six months. This means that you won't have to pay more than what you can afford, and you'll be able to hold onto the possession of your assets.In addition, interest on your debts will be frozen, so you'll have more money available each month to pay off your debts.
Consumer Proposals Mean Lower Monthly Payments
A consumer proposal, through a Licensed Insolvency Trustee (LIT) is a legal process that allows consumers with unmanageable debt to make a one-time payment to their creditors and have the remainder of their debt forgiven.
One of the benefits of making a consumer proposal is that it often results in lower monthly payments. This is because, as part of the proposal, creditors agree to accept a reduced payment amount over a fixed period. In most cases, this allows consumers to get caught up on their debts without declaring bankruptcy.
You Get Creditor Protection
A consumer proposal does provide creditor protection. It is a legal process that allows you to reach an agreement with your creditors to repay part of your debt over time. This agreement is legally binding, so the creditors cannot pursue you for the money you owe. In addition, a consumer proposal will stop any legal action the creditors may be taking against you.
You Avoid Bankruptcy
A consumer proposal helps avoid bankruptcy by arranging for a settlement between the debtor and their creditors. This proposal will usually involve a repayment plan over some time and a waiver of interest and late fees.
Bankruptcy should always be considered as a last resort, as it can have long-term consequences on your credit rating and ability to borrow money in the future. A consumer proposal is often a more manageable solution that allows you to keep your assets and repay your debts over time.
What Are the Risks of Consumer Proposals?
There are a lot of advantages to consumer proposals, as we have discussed above. However, not everyone is qualified for the process. It’s always an excellent choice to talk with a licensed insolvency trustee to learn what’s best for your case.
Of course, there are also risks associated with any debt relief option, including consumer proposals.
Since there is a time allotted for you to pay your loans, it may take longer to complete your debts. If you didn’t apply for it and your financial status has improved, you can pay your debts in full earlier.
Another risk is that a consumer proposal will have a negative impact on your credit history for a maximum of six years. This could make it difficult to borrow money in the future or get approved for new credit cards or loans. Additionally, if you default on your payments or miss a payment altogether, this will likely be reported to the credit bureaus and will have a negative impact on your credit score. Also, if you enter into a consumer proposal and then later file for bankruptcy, the consumer proposal will be listed on your credit report as a "bad debt" and will further damage your credit score.
It's also important to note that there is no guarantee that all of your creditors will agree to the proposed terms, which could leave you with some debts still outstanding. Examples of debts that are not eligible for consumer proposals are secured debts, student loans if you’re out of school for seven years, family law support payments, debts due to fraud, and more.
When Is Bankruptcy Better?
Bankruptcy is often seen as a last resort, but in some cases, it can be a better option than making a consumer proposal. Here are some times when bankruptcy might be the better choice:
- If your debts are primarily government debts, you can only eliminate them through bankruptcy.
- If you have minimal income and assets, you may not qualify for a consumer proposal.
- If your creditors are unwilling to accept a consumer proposal and refuse to further negotiate, you may need to file for bankruptcy.
- If you have already filed a consumer proposal and it was unsuccessful, you can file for bankruptcy.
Who Can Provide the Best Guidance for Consumer Proposal?
A consumer proposal is a negotiated settlement between a debtor and their creditors. It involves a lot of legal processes and comes with benefits and risks. If you're considering this option, it's important to consult with a licensed insolvency trustee like our team at Risman Zysman Inc. We will discuss your specific situation and help find the best solution for you.
Our licensed insolvency trustees can help with a consumer proposal in a few ways. First, we can work with you to create a budget that will allow you to pay your debts over time. This can involve renegotiating your debts with your creditors or coming up with a plan to sell some of your assets.
Second, we can help you file for a consumer proposal and act as your representative during the process. We will negotiate with your creditors on your behalf and make sure all of the paperwork is filed correctly. Finally, our trustees can help you after the consumer proposal is accepted by providing advice and support as you rebuild your financial life.
A WORD OF CAUTION: There are a lot of debt consultants in Canada who offer to help with consumer proposals and get better deals. Creditors only work with a licensed insolvency trustee and not with debt consultants, so it’s still better to avoid the hefty fees and talk straight to a trustee.
Fortunately, if you need help with consumer proposals in Ontario, our team at Risman Zysman Inc. is just around the corner to provide expert advice and services. So schedule your appointment with our experts today!