Dealing with debt is, unfortunately, a common problem throughout Canada. Many people will need to borrow money to buy a home, to get an education, to purchase a vehicle, and even to make ends meet.
Whether you live in a large and expensive city like Toronto, or a smaller city like Guelph, life can still be expensive and people need to borrow money from time to time. While some can pay off their debts on time and in full, that isn’t always the case.
Many others will find themselves struggling to get out of debt, which can effectively decimate their finances. Thankfully, there are debt relief options that can assist individuals with nowhere else to turn. One of the most popular and helpful options to consider in Guelph is a consumer proposal.
What is a Consumer Proposal and a Licensed Insolvency Trustee?
A consumer proposal in Guelph is a legal agreement between you and your creditors to pay back a portion of the money you owe to them. The amount that you will end up paying can depend on how much you owe and your income. The good news is that it will generally lower the amount that you need to repay.
If you want to file for a consumer proposal, you need to enlist the help of a Licensed Insolvency Trustee (LIT) in Guelph. You cannot file a consumer proposal on your own without one. A LIT is a professional who is educated and trained to oversee bankruptcy and consumer proposal filings. They are regulated by the government and must adhere to all the laws and regulations set out in the Bankruptcy and Insolvency Act. They will work one on one with you to evaluate which debt relief solution would make the most sense for your life and situation.
The Consumer Proposal Process in Guelph
Now that you know a little about what a consumer proposal in Guelph is and who can help you file one, it is a good idea to familiarize yourself with the process.
Meet With a LIT
The process of filing a consumer proposal begins with a meeting with a Licensed Insolvency Trustee in Guelph. You want to choose one that you are comfortable with. You will talk about your financial goals, which debt relief solution makes the most sense, and potentially take the first step in filing a consumer proposal.
Create a Proposal
You and your LIT will work together to come up with a proposal to offer to the creditors. The amount you offer will depend on how much you have, your income, and your current financial situation. While you likely want to give them as little as possible you also want to make sure that the amount is fair for the creditors, as they aren’t forced to accept.
Send the Proposal
Once an appropriate amount has been decided on, your LIT will send the proposal to your creditors. The amount of time that it can take to hear back from them will vary. If you have multiple creditors, the ones that hold the majority of your debt must agree to the terms.
Wait for the Acceptance of the Proposal
Once your proposal has been accepted, you will have five years to make the appropriate repayments according to the proposal. If it has not been accepted, meet again with your LIT to decide what course of action to take next.
How Does a Consumer Proposal Affect Your Credit?
A consumer proposal in Guelph can be an incredible debt relief solution for a variety of different situations. However, what is the effect that it will have on your credit? Well, there will be a slightly negative effect on your credit. In Canada, all credit accounts are given a rating, noted in your credit report, between 1 and 9. A perfecting is 1 and the worst is a 9.
All accounts associated with your consumer proposal in Guelph will give you a rating of 7, which means you have entered into an agreement with your creditors to settle your debts. For comparison, a bankruptcy will give you a credit rating of 9. So as you can see, while a consumer proposal is bad, it is still less harmful to your credit than bankruptcy.
A consumer proposal will also lead to a note being included in your credit report that shows that you have entered into a consumer proposal and the date that you filed. However, sometimes it is worth a negative mark on your credit for a while to drastically lower the amount of debt you have.
Can All Debts Be Included in a Consumer Proposal in Guelph?
Before you actually file a consumer proposal in Guelph, you need to be aware that not all debts can be included in one. Some debts that cannot be included are:
- Student loan debt (you aren’t required to make your student loan payments if you’re in a consumer proposal, but the interest will still accumulate)
- Auto loans
- Mortgages
- Child support or alimony
- Court fines or penalties
- Debts that are related to fraud
Other than that, nearly all kinds of debts can be included in a consumer proposal when you file. This includes credit cards, lines of credit, payday loans, and income tax debt. If you are still confused about whether your debt can be included or not, be sure to make this a priority when you meet a trustee. The last thing you want to do is file for one and then find out that the debts you have cannot actually be included.
When Does it Make Sense to File a Consumer Proposal in Guelph
A consumer proposal in Guelph is the right solution for many consumers, but this isn’t always the case. It’s important to know when it makes sense to file a consumer proposal and when it doesn’t. Filing for a consumer proposal is the right choice if:
- You have consumer debts that are more than $5,000 but under $250,000. This is not including your mortgage
- You have a decent-paying job and can afford to make monthly payments
- You don’t see a way that you will ever be able to pay off your current debts in full
- You cannot get a debt consolidation loan
- You don’t want to file for bankruptcy for one reason or another
Of course, before you decide to file for a consumer proposal, be sure to spend a lot of time talking with your family and your LIT about if it is the best option. Other debt relief solutions like debt settlement, debt consolidation, and credit counselling are all options that could be considered.
Consumer Proposal vs. Bankruptcy
Speaking of bankruptcy, when many people are struggling financially, their mind may immediately go to bankruptcy. However, in many cases, it might make more sense to go with a consumer proposal in Guelph. It is important to know the similarities and differences between them so you know which is the best option for you.
The main similarity between the two is that it can help you out of your debt troubles. Both options will help you to escape your debts over time. Another similarity is that they will both negatively affect your credit in some capacity once you file. However, that is about where the similarities stop.
One of the major differences between a consumer proposal and bankruptcy is that a consumer proposal will not impact your assets at all. You will get to maintain possession of all of your assets like your home and vehicle. Surrendering many of your assets is common in bankruptcies, as you are eliminating your debts altogether.
Another difference is that a bankruptcy request will be granted for most people in most cases, while there is nothing that guarantees your creditors will accept your consumer proposal. So there is a risk you might not be able to get a consumer proposal, while almost anyone (who qualifies) can file for bankruptcy successfully. Also, consumer proposals have a cap of $250,000, whereas there is no maximum limit for bankruptcy. So if you have a ton of consumer debt, bankruptcy may be your only option.
In most cases, it makes sense to try and file for a consumer proposal first, as your assets are protected and there will be less damage to your credit. If you cannot get a consumer proposal, it makes sense to move on to more extreme measures like bankruptcy as a last resort.
Is Filing a Consumer Proposal in Guelph The Right Option?
If you live in Guelph and have been thinking about filing a consumer proposal to help deal with your debt, Loans Canada can help. We can match you with the right debt relief option, help you rebuild your credit, and get you back on track toward a healthy financial future.
