Things You Must Know About a Consumer Proposal

We have started noticing a lot more people each day that have heard about consumer proposals, and many are interested in this approach as opposed to bankruptcy. But, it also appears that many of these people are not aware of how a consumer proposal actually works.

Keep reading to find out more about the essential facts surrounding consumer proposals:

  • A Consumer Proposal is a legally binding arrangement, that falls under the Bankruptcy and Insolvency Act, that is made between your creditors and you.
  • It can help you to lower the applicant’s debt load and improve cash flow. Settlements of around 30 cents to the dollar are very common.
  • This agreement consolidates all the debt that you owe into a single monthly payment.
  • This is usually a debt relief option that is the most affordable and offers very low monthly payments.
  • The monthly payments required of you will depend on what your creditors are open to accepting and what you can actually afford.
  • No interest is charged on a Consumer Proposal.
  • These proposals are offered only by a Licensed Insolvency Trustee. These individuals act as consumer proposal administrators.
  • This is the only “government” debt settlement program available.
  • You won’t be required to pay upfront fees to file your consumer proposal. Payments only start once your proposal has been filed.
  • The trustee’s fee forms a part of your proposal, so you won’t be liable for any extra fees.
  • A Consumer Proposal can protect your assets. For example, if you have $30,000 equity in the home, and you are worried you will lose your house in bankruptcy. If you choose a Consumer Proposal (and your creditors have accepted the deal), you maintain control of your property.
  • Consumer proposals can assist you when it comes to avoiding “surplus income” in bankruptcy. If you are earning more than the “surplus income” limit set by the government, or your income increases after filing, bankruptcy can turn out to be extremely expensive. A consumer proposal will give you five years to make your payments, which makes the monthly payments a lot more affordable.
  • In a proposal, you get to keep any of your tax refunds. On the other hand, when filing for personal bankruptcy, you will lose tax refunds in the year that you filed (at a minimum).
  • You will still be allowed to renew a mortgage when you are under a Consumer Proposal plan (provided you have kept up with the payments).
  • Creditors vote on these proposals, with each “dollar of debt” counting as 1 vote. If 50% plus 1 have voted in favor of this deal, all your creditors will be bound to it.
  • A Consumer Proposal will shield you from your unsecured creditors. This means no more legal actions or phone calls.
  • Your administrator for your Consumer Proposal will deal with the creditors once you have filed, which means you no longer have to.
  • You are not required to declare what you are earning to your trustee during your proposal.
  • Consumer proposals include two mandatory sessions of counseling that covers money management with a credit counselor (qualified), who will assist you with setting up and maintaining your budget. They will also give you ideas and advice on ways to rebuild your credit score safely.
  • A Consumer Proposal will be removed from your credit rating after 6 years of the filing (maximum), or 3 years after you have completed the proposal (whichever comes first). This is a lot sooner when compared to bankruptcy which typically remains on a credit report for 6 to 7 years (after completion). For a 5 year Consumer Proposal, this would mean your proposal would be removed 1 year after you have completed the proposal.
  • You have to complete a Consumer Proposal within 5 years.
  • You have the option to do either a full-lump sum or partial proposal to all your creditors.
  • You do have the option to pay your proposal off earlier.
  • You might be allowed to obtain credit cards during the proposal. This can assist you in rebuilding your credit before you complete the proposal. Yet we suggest avoiding building any new credit-based balances.
  • You get to avoid bankruptcy. This can be a good option when your employment would have been affected, and it provides personal relief or satisfaction to many.

Around two-thirds of Canadians, or 7 in 10 Ontarians, choose the option of a Consumer Proposal rather than bankruptcy to deal with their debt. To find out if this option is sensible for your situation, contact the Licensed Insolvency Trustees at Risman Zysman today to schedule a free consultation.