Consumer debt can lead to devastating financial issues. That’s why when your debt begins to build, it’s always a good idea to seek assistance before it becomes unmanageable. Debt can build quicker than you imagine and often takes you unaware.

Regardless of how your debt has grown, a Consumer Proposal offers you an option to deal with your creditors to negotiate better terms through a Licensed Insolvency Trustee. If you have found your debt is becoming more and more unmanageable, we can help by protecting your interests and coming up with a proposal agreeable to both you and your creditors.

Here’s everything you need to know about a consumer proposal and how it can help you avoid bankruptcy:

The Basics of a Consumer Proposal

A consumer proposal is filed under the Bankruptcy and Insolvency Act through Licensed Insolvency Trustees like ourselves. It provides a legally binding arrangement we negotiate on your behalf with your creditors by outlining a plan that makes paying back your debt more manageable.

When the proposal is filed, you will no longer have to face calls from collectors, garnishee of wages, or the threat of legal action from your creditors. Interest will no longer be applied to your debt, and your creditors will look at the proposal and vote on whether they wish to accept your terms or not.

It offers an option that helps you avoid bankruptcy, but it still requires careful consideration before you decide it’s the right option to resolve your financial difficulties.

Why would I consider a consumer proposal?

When you file a consumer proposal, you can not only avoid bankruptcy but also maintain control of your assets. When you file for bankruptcy, your trustees may take over your assets and use them to pay off your debt. With a consumer proposal, this is not the case.

Instead, you will come to an agreement with your creditors that usually results in you paying a lower balance on your debt. Paying this also puts a stop to the interest that you are incurring on your outstanding balances.

A Consumer Proposal makes sense if:

• You owe more than $5,000, but less than $250,000, excluding your mortgage
• You can still afford to make monthly payments
• You know you won’t be able to repay the debt due to building interest or balances
• You don’t qualify for a debt consolidation loan
• You don’t want to declare bankruptcy

We will review your finances and let you know if a consumer proposal is best, or if you still qualify for debt consolidation. Debt consolidation is always a better option as it won’t affect your assets or your credit score.

How does a consumer proposal work?

When we decide a consumer proposal makes sense for your financial situation, we’ll put together a payment plan that’s presented to all your creditors. We will work to ensure the plan lessens the financial burden on your end, while still appealing to your creditors. This is often a better prospect for creditors than bankruptcy, as they will receive a larger sum of money paid towards the debt.

When we file your consumer proposal your creditors have 45 days to respond by either voting for, against or abstaining from voting. We will review the votes to see if your proposal is accepted.

If your creditors vote for the proposal you can begin the payment plan which can not be longer than 5 years to complete.

Once accepted, it’s a legally binding agreement between you and your creditors, and we will make the payments on your behalf. When you fulfill the terms of your proposal, you will finally be released from the unsecured debts you owed.

What happens if the proposal is rejected?

If enough creditors vote against the proposal, there can be a meeting held to review the proposal and, in some cases, negotiate better terms the creditors propose. However, the creditors must agree to the meeting or submit a counteroffer for this to proceed.

An example would be a request for a higher payment each month. You could also propose a longer period for you to make payments, so they get more money for what you owe on your balance. We will consider each counteroffer and advise you if it makes sense to accept.

We can also decide to make yet another counteroffer until we come up with terms that are agreeable to both sides. The goal is to reduce your payments, help forgive as much of the balance as possible, and ensure you can afford the monthly payments while also keeping the creditors satisfied.

As long as we come up with reasonable terms, creditors are apt to agree as it allows them to recover more money than they would if you filed for bankruptcy.

Can anyone file a consumer proposal?

In order to qualify for a consumer proposal, you must show:

• You are unable to make credit payments when they are due
• Your debts have become greater than the value of your assets
• Your total unsecured debts are less than $250,000
• You do not have a proposal proceeding pending.

A Consumer Proposal does not affect your mortgage, which you will still be expected to pay on time.

Is there a downside to consumer proposals?

Yes, there are some important things that could make a consumer proposal less appealing to you, including:

• The proposal remains as a permanent public record located on a searchable database which may affect employment prospects.
• It costs more than filing for bankruptcy with as much as an additional 20% being added to your payments to cover administrative costs
• It must go through a process to have it approved by the Court and all creditors involved
• Creditors can reject the Consumer Proposal
• Student loans less than seven years old can't be included
• Secured debts aren't included

Despite these issues, overall, if you don’t qualify for a debt consolidation loan, a consumer proposal may be a better option before you are forced to file for bankruptcy.

Another thing to keep in mind is that while your consumer proposal will stay in the legal section of your credit report for up to 3 years following your debt repayment, a bankruptcy will be reported for up to 6 years.

If you are living with unmanageable debt and would like to learn more about consumer proposals, call Charles Advisory at 416-486-9660 or contact us here.