When it comes to debt forgiveness, the consumer proposal is a leading alternative to bankruptcy, but consumer proposals are largely unfamiliar to many. Most people only get to learn about how a consumer proposal works when they meet with a Licensed Insolvency Trustee (LIT).
When you’re faced with debts that you can no longer pay back on your own, what are your options? Many people delay seeking help because they fear that bankruptcy will be their only option. But other debt relief strategies exist.
This November, for Financial Literacy Month, we’d like to give you the lowdown on the consumer proposal and how it works.
A consumer proposal is an agreement sanctioned by the Bankruptcy and Insolvency Act that benefits from the same protections as a bankruptcy, like protection from your creditors, lawsuits or wage garnishments, which are not part of any debt settlement program or any debt consolidation loan.
In a consumer proposal, a Licensed Insolvency Trustee reduces your unsecured debts (credit card, line of credit, etc.) to a significantly lesser amount by negotiating with your creditors. You can expect to pay back between 30-80 per cent of your debts.
If you are interested in learning more about the consumer proposal, you can talk to an LIT directly, free of charge. Referrals aren’t necessary and can sometimes cost money.
The monthly payments in a consumer proposal can be spread over a maximum of five years, which allows you to keep your monthly payment amount as low as possible.
Once your consumer proposal is accepted, interest charges are frozen. This is a big advantage over a debt consolidation loan.
The LIT’s fees are included within the proposal and your monthly payments. Payments don’t begin until your proposal is filed and stop once your payment schedule is complete.
It allows you to renegotiate your unsecured debts (credit cards, lines of credit, etc.) and keep your assets and secured debts, like your mortgage and car loan, separate. This is likely the biggest advantage of a consumer proposal over bankruptcy.
You can spread payments over a five-year period or you can make partial or a full lump sum payment whenever you like.
After filing a consumer proposal, your credit will have an R7 rating, a very low credit score that will remain on your file for either three years after you complete your payments or six years after you initially file, whichever comes first. Your Licensed Insolvency Trustee can provide you one-on-one guidance throughout the consumer proposal process about how to repair your credit as quickly as possible.
A consumer proposal is a chance to turn the page on debt and start a new chapter. It’s all about finding what works for you and your own version of financial wellness. It’s why, as part of the consumer proposal process, you will receive money management counselling with a qualified credit counsellor, who will help you create and maintain a budget, and give you important guidance about how to rebuild your credit rating.
Are you interested in learning more about the consumer proposal and how it can help you overcome debt? Book a free consultation with a Licensed Insolvency Trustee today.