In this video, Doug Hoyes, Bankruptcy Trustee and Consumer Proposal Administrator explains why a consumer proposal is one of the best choices to eliminate overwhelming debts. It is the number one alternative to bankruptcy in Canada.
More information about consumer proposals can be found in our slideshare presentation Consumer Proposals: The Bankruptcy Alternative
A Consumer Proposal is a deal to eliminate your debts. Here’s an example. Let’s say things were going well, you had a good job, and then something went wrong. You lost your job or got sick or got divorced and you used credit to survive and now you can’t keep up with your payments. So now you owe money on credit cards, bank loans, petty loans, and income taxes. You’re back to work. You’ve got a good job so you can afford to pay something each month, but some months it’s a struggle just to make your minimum payments.
How can you deal with your debts? The solution might be a Consumer Proposal. We figure out what you can afford to pay each month and then offer that deal to the people you owe money to. In a typical Consumer Proposal you might end up paying back a half or even a third of what you owe and the creditors agree to wipe out the rest of your debt. Why would they agree to write off some of your debt? Because they don’t want you to go bankrupt.
So what’s the catch? Well, there’s lots of catches. A Consumer Proposal isn’t something I made up. It was created by the Federal Government. It’s Federal law. So there are three rules that need to be followed.
Rule Number 1, you must offer your creditors more than what they would get in a bankruptcy. Otherwise, they won’t accept the deal. If you have a job making lots of money or you own lots of assets, both a Consumer Proposal and a bankruptcy are expensive so they might not work for you. Don’t worry, when you meet with us we’ll explain how they both work.
Rule Number 2, you’ve got to be able to make a payment each month. If you’re working or have a good pension, great. If you have no income and no assets, a Consumer Proposal probably won’t be the answer for you. When we meet we’ll spend some time with you working out a monthly budget to see what you can afford to pay each month. Each of your creditors will get a copy of that budget so it has to be reasonable.
Rule Number 3, the final rule. Because a Consumer Proposal is a legal procedure governed by Federal law it must be filed by a Consumer Proposal Administrator licensed by the Federal government. Your proposal can’t be filed by an ordinary accountant or a lawyer or a credit counsellor or a debt consultant. Only a person licensed by the Federal government can file a proposal on your behalf. So before you pay any money to anyone, make sure they’re licensed by the Federal government. And yes, in case you’re wondering, Hoyes Michalos and Associates Inc. is licensed by the Federal government to file Consumer Proposals.
A Consumer Proposal is not the right solution for everyone. Many people can deal with their debts by making a budget, cutting their expenses, getting a second job, selling assets or refinancing their home. But if you don’t have any assets to sell and if you can’t refinance, then you can’t afford to repay your debts in full, a Consumer Proposal might be the best way for you to deal with your debts.