Why File a Consumer Proposal in Ontario?
A consumer proposal is considered the #1 alternative to bankruptcy in Ontario for good reason. Consumer proposals are the only government approved debt settlement program in Canada. While there are pros and cons with a consumer proposal, today 6 in 10 Ontarians avoid filing bankruptcy by choosing a consumer proposal as their preferred debt relief solution.
For those who qualify, a consumer proposal has several key advantages over bankruptcy:
- A negotiated debt settlement
- You repay only a portion of your total debts
- One, affordable, monthly payment over no more than 5 years
- Interest is frozen when you file
- Legally binding for you and your creditors
5 Top Advantages of Consumer Proposals
A consumer proposal is a good idea for many reasons. Here are the top 5 reasons why you should consider a consumer proposal over other debt relief alternatives:
- Keep Your Assets. One of the biggest advantages of a consumer proposal is the fact that your assets are protected. You keep all assets in a proposal including any tax refunds, investments and equity in your home.
- Avoid Surplus Income. Unlike bankruptcy where the more you earn the more you pay, consumer proposals have a fixed payment that never increases. If you expect your income to increase, consumer proposals are better than bankruptcy.
- Lower Monthly Payments. In a consumer proposal, you negotiate to repay only a portion of your debt. It is not unusual to see debts reduced by as much as 70% of the original amount owed. A consumer proposal is one of the best, and safest, debt consolidation options available. Interest stops during a consumer proposal, resulting in significant savings over a debt consolidation loan or second mortgage.
- Get Creditor Protection. As a legal process under the Bankruptcy & Insolvency Act, a consumer proposal provides creditor protection that will stop collection calls and wage garnishments. Once your consumer proposal is approved by the majority of your creditors, it is binding on all creditors.
- Avoid Bankruptcy. Many people need debt relief but want to avoid filing bankruptcy. If you feel you would like to repay what you can, a consumer proposal is a safe alternative that you should discuss with a Licensed Insolvency Trustee. Creditors will generally accept your consumer proposal if you offer more than they would expect to receive in a bankruptcy.
Are There Disadvantages of Consumer Proposals?
Is a consumer proposal worth it? While consumer proposals are becoming more common in Canada they are not a good option for everyone.
A consumer proposal will usually take longer to complete than a bankruptcy. By lowering your monthly payment through a consumer proposal, you are paying your creditors their recovery over a longer time. However, if your financial situation improves you can pay off a proposal early.
If you do not have any assets that would be seized in a bankruptcy or do not have significant income, then filing personal bankruptcy may be your best choice. During your consultation, your Licensed Insolvency Trustee will explain the pros and cons of each alternative.
A consumer proposal does affect your credit rating. Some important facts to know about consumer proposals and credit scores:
- An R7 note will remain on your credit report for 3 years after completion
- You may already be unable to access credit due to a poor credit score
- Many do not realize that a debt management plan and a consumer proposal have a similar impact on your credit score
- It is often possible to get a secured credit card during a consumer proposal
Who should I talk to about a Consumer Proposal?
If you think a consumer proposal is the right solution for you, the next step is to talk with a Licensed Insolvency Trustee. Only an LIT can act as a consumer proposal administrator.
CAUTION: You do not need a referral to speak with a Licensed Insolvency Trustee nor do you need to pay anyone to help you prepare any paperwork. Please be cautious of debt consultants who advertise about consumer proposals and offer to get you a better deal than your trustee. Creditors do not like dealing with these debt consultants and they are rarely able to arrange a better deal and certainly do not warrant the large fees they charge.
At Hoyes Michalos, you always meet with a Licensed and Certified debt expert, never a salesperson. Ask us if a consumer proposal is right for you.