Pay back a portion of your debt within 5 years and keep certain assets
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UNDERSTANDING CONSUMER PROPOSALS IN CANADA
If you’re struggling with debt but the thought of filing for bankruptcy or losing certain assets is too distressing, a consumer proposal might just be the life-changing debt solution you’re looking for. To determine if a consumer proposal is the right choice for you, it’s important to meet with a Licensed Insolvency Trustee to discuss your financial circumstances. In the meantime, you can learn more about what the consumer proposal process entails below.
Consumer proposal overview
Considering a consumer proposal as an alternative to bankruptcy? Learn more about what a consumer proposal is and how it works, so you can make an informed decision.
What is a consumer proposal?
What exactly is a consumer proposal? In short, it’s a formal, legally binding agreement between you and your creditors that outlines that you will pay all or part of your debt at a reduced rate over a specified period of time, up to a maximum of 5 years. In Canada, consumer proposals are governed by the Bankruptcy and Insolvency Act (BIA) and administered by a Licensed Insolvency Trustee (LIT).
But what will happen to your house and car? Generally speaking, secured creditors are not affected by a proposal. By making regular payments that you can afford, you will be able to choose the assets you keep. How is the amount you pay determined? It is primarily based on your income, what you own, and how much you owe.
Am I eligible for a consumer proposal?
In order to be eligible to file a consumer proposal, you must meet the following requirements:
- You are unable to or you have ceased to pay your debts as they become due or your assets are less than your liabilities/debts
- Your total debt load is less than $250,000 (excluding your mortgage)
- You have a stable source of income in order to make monthly consumer proposal payments
To find out if you qualify for a consumer proposal—and to determine if it’s the right choice for you—set up a free confidential consultation with a Licensed Insolvency Trustee. Your Trustee will review your financial situation and discuss all available debt relief options, so you can choose the best path forward.
How does the consumer proposal process work?
The consumer proposal process can be summarized in four steps:
STEP 1: Meet with a Licensed Insolvency Trustee
If, after carefully going through your options, you determine that a consumer proposal is the most appropriate debt relief solution, your Licensed Insolvency Trustee will then review the process with you in detail.
STEP 2: Prepare and file the proposal
Your Licensed Insolvency Trustee will help you figure out how much you can afford to pay creditors every month. Once the proposal is filed, most actions against you will stop, including harassing collection calls, wage garnishments, and legal action. Interest also stops accruing.
STEP 3: Fulfill the agreement
If the proposal is accepted, you will make all payments agreed upon within the proposal. Once you have paid in full and completed two financial counselling sessions, you will be released from all the unsecured debts you owed on the day you filed.
STEP 4: Prepare for a debt-free future
Your Licensed Insolvency Trustee will discuss with you ways to restore your credit rating both during the proposal period and afterwards.
Learn more about how a consumer proposal works.
Advantages of a consumer proposal
As an alternative to declaring bankruptcy, a consumer proposal offers several key benefits:
- Allows you to pay your creditors more
- Allows you to keep all of your assets, including your home and your car
- Stays on your record for 3 years after completion (vs. 6 years for a bankruptcy)
- Impact on credit rating is less severe than bankruptcy
- No additional costs or fees outside of your monthly payment
Learn more about the benefits of consumer proposals.
Consumer proposal payment terms
Consumer proposals give you the flexibility to settle your unsecured debt in the way that works best for you. Options include, but are not limited to: making monthly payments over a defined period of time, cashing in RRSPs to fund a proposal, or offering a lump sum to be borrowed from family members.
How does a consumer proposal affect my credit rating?
A record of your consumer proposal will stay on your credit report for 3 years after your final consumer proposal payment. A consumer proposal will negatively affect your credit rating, although less drastically than a bankruptcy. Nonetheless, your credit score will be low and you will need to start rebuilding your credit.
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Get the expert guidance and care you need
When faced with debt, navigating your options can be confusing and downright overwhelming. Rest assured, your local Licensed Insolvency Trustee at MNP LTD is here to help. We will take the time to understand your personal situation and carefully review your options with you before you determine if a consumer proposal is the ideal debt relief option for your unique circumstances. If it is, we will help build a debt repayment agreement that satisfies your creditors, so you can begin to erase debt and move forward with your life.
To find out if a consumer proposal is the right solution for you, get in touch with MNP LTD today for a free confidential consultation.