Consumer Proposals

A Simple Guide

If your personal debt is spiraling out of control, declaring bankruptcy might seem like the only route. But, a better option than bankruptcy might be pursuing a consumer proposal. With a consumer proposal, you can still eliminate, or drastically reduce, your debt without the potential long-term consequences of filing for bankruptcy.

What is a Consumer Proposal?

A consumer proposal is a legal settlement in which an arrangement is made to repay debts for less than is owed. Through a program legislated by the Canadian government, a consumer proposal provides debtors with legal protection while undertaking a viable plan for debt relief.

Filed through a licensed insolvency trustee (LIT) acting as administrator, a consumer proposal grants legal protection from creditors in exchange for the negotiation of steady debt repayment. A consumer proposal can be of significant benefit to debtors because it’s a legally binding agreement to which, once agreed upon, all creditors are obligated. Among the unsecured debts that can fall under a consumer proposal are credit card debts, bank loans, payday loans, tax debts, and some student loan debt.

The benefits of a consumer proposal can be significant. Arrangements are commonly made to reduce debts by 70% or more.

Debt repayment can be consolidated into manageable monthly payments with interest frozen, and any surplus income earned during the repayment period is not considered in the agreement. The repayment period is a maximum of five years, which lessens the burden over time and can make the road to being debt free much more achievable.

A consumer proposal also means an end to collection calls or wage garnishments, providing greater peace of mind. Also, there is much less risk of damaging legal consequences than with bankruptcy. Significantly, there is no loss of assets, such as equity in a home. Any potential damage to one’s credit score is also typically much less severe than a bankruptcy.

Overall, filing a consumer proposal can be a wiser choice than bankruptcy. However, there are specific requirements that must be met to do so.

Filing a Consumer Proposal: The Basics

In Canada, a consumer proposal must be filed with a licensed insolvency trustee. LITs are federally regulated professionals specializing in providing services to individuals or businesses facing debt issues.

The LIT assesses the debtor’s situation to determine a reasonable repayment amount and course of action for negotiating with creditors. Based on this, they then file for the proposal on the debtor’s behalf.

Other requirements for filing a consumer proposal in Canada include:

Debts (not including home mortgage) must be more than $5,000 but less than $250,000.
The debtor must have steady employment indicating an ability to make monthly payments.
The debtor must be ineligible for a debt consolidation loan due to debt obligations being too high.
The debtor must demonstrate inability to pay existing debts in full.
The debtor must be a resident (not necessarily a citizen) of Canada or own property in Canada.

Overall, a consumer proposal can be preferable to other debt settlement or credit counselling programs and offers a practical option to bankruptcy. When your financial future’s at stake, it’s an alternative definitely worth considering.

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