We’re finding that we meet with more people every day who have heard of consumer proposals, and are interested in them as an alternative to bankruptcy, but it seems many are not completely sure about what they are or how consumer proposals work.
Here are 25 important facts about consumer proposals:
- A consumer proposal is a legal arrangement, under the Bankruptcy and Insolvency Act, that can be made between you and your creditors.
- It will help reduce your debt load and improve your cash flow. Settlements for as low as 30 cents on the dollar are common.
- It consolidates all your debt into one monthly payment.
- It is usually the most affordable debt relief option, offering the lowest monthly payments.
- Your monthly payments are based on what you can afford and what creditors are willing to accept.
- There is no interest on a consumer proposal.
- A proposal can only be offered by a Licensed Insolvency Trustee (acting as a consumer proposal administrator).
- There are no other ‘government’ debt settlement programs out there.
- You do not need to pay an upfront fee to file a consumer proposal. Payments do not begin until the proposal is filed.
- The trustee’s fees are PART of the proposal itself, there are no extra fees.
- A consumer proposal protects your assets. An example is a house – let’s say you have $30,000 equity in your home, and you are concerned you would lose the house in a bankruptcy. If you file a consumer proposal and your creditors accept the deal, you keep control of your house.
- A consumer proposal can help you avoid ‘surplus income’ in a bankruptcy. If your income is higher than the government surplus income limit, or rises after filing, then bankruptcy can be expensive. A proposal spreads your payments over five years making the monthly payment much more affordable.
- You keep your tax refunds in a proposal. If you file personal bankruptcy, you lose your tax refund for the year you file, at least.
- You can still renew your mortgage when in a consumer proposal (assuming you are keeping up with your payments).
- The creditors vote on the proposal, with every dollar of debt worth one vote – if 50% plus one vote in favour of the deal, all creditors are bound by it.
- A proposal offers protection from your creditors – no more phone calls or legal actions.
- Your consumer proposal administrator deals with your creditors once you file, you don’t have to.
- You don’t have to report your income to the trustee during the proposal.
- A consumer proposal provides for two sessions of money management counselling with a qualified credit counsellor, who will help you set up and maintain a budget, and give you some tips and ideas about how to safely rebuild your credit rating
- A consumer proposal is removed from your credit a maximum of 6 years after filing, or 3 years after completion whichever comes first. This is much sooner than bankruptcy which remains for 6 to 7 years after completion. For a 5-year consumer proposal, this means the proposal is removed just one year after you finish.
- A consumer proposal must be completed within five years.
- You can do a partial or full lump sum proposal to your creditors.
- You can pay it off early.
- You may be able to obtain a credit card during your proposal. This can help you rebuild credit while you are completing your proposal although we always recommend avoiding building new credit balances.
- You avoid filing bankruptcy. This can be a great option if your employment is affected if you declare bankruptcy and offers personal satisfaction to many.
Roughly two-thirds of Canadians (and 7 in 10 Ontarians) choose a consumer proposal over bankruptcy as a way to eliminate debt. To see if a consumer proposal makes sense for you, talk with a Licensed Insolvency Trustee like Hoyes Michalos today. Book your free consultation.