Richmond, like many towns in British Columbia, is an increasingly popular, but also an increasingly expensive place to live. Because of that, many of the borough’s residents suffer from high levels of household and consumer debt, both of which can be extremely hard to recover from.
Sometimes, such a large amount of debt can be eliminated using a combination of your income and savings. However, it isn’t always that simple, meaning a far more drastic solution might be what’s needed. If that sounds like your situation, a consumer proposal could be it.
How a Consumer Proposal Differs From a Bankruptcy
When it comes to legally binding debt relief procedures, you’ll generally have two options to choose from, both of which will become a matter of public record under the regulations of Canada’s Bankruptcy and Insolvency Act. Although both procedures can be very helpful, neither is consequence-free, so be sure to consult a financial expert before you make your choice.
Your first choice, of course, is the consumer proposal, which is a type of debt relief service that allows you to pay back a significant portion of what you owe to your creditors, rather than the full outstanding amount. This proposal is traditionally filed by a Licensed Insolvency Trustee, a court-appointed professional who trained to reach out to your creditors and negotiate a deal that treats all parties involved fairly. In order to qualify, you must owe between $5,000 and $250,000 of unsecured consumer debt.
The creditors that hold the largest percentage of your debt will then meet to discuss the terms of the proposal and will have 45 days to either reject or accept it. If the proposal is denied, your trustee may have to renegotiate and make them a better offer. However, if they accept, the proposal can be filed accordingly and any wage garnishment or other collection procedures against you should come to an end. The process will officially conclude once you’ve paid back the remainder of your debt through a series of monthly installments over a maximum period of 5 years.
Click here to learn how to pay your consumer proposal early.
Here’s where you must proceed cautiously and remember that there are consequences to this kind of solution. Firstly, your credit rating will drop to an R7 while the proposal is active and the event will be recorded in your credit report for 3 years following the date of your final payment. This will make it difficult to secure new credit during and even in the months following your discharge. Secondly, you must abide by any rules set by the court. That means no missing payments, no skipping the credit counselling sessions you may be assigned.
Although you’re generally able to pay a consumer proposal early if you have the adequate funds, you must be sure to pay your full remaining balance on time, as any defaulted payments will just make things worse. That said, any assets you own should be safe from seizure.
If your creditors don’t accept your consumer proposal or the amount of debt you carry surpasses the designated limits, then you may need to consider declaring personal bankruptcy. Unlike a consumer proposal, you technically do this when you have at least $1,000 of unsecured debt and there is no definitive debt limit.
Instead of paying back a portion of what you owe, you’ll have to make a series of “surplus income payments” directly toward the court, if your income is over a certain threshold. You’ll also have to provide a base contribution of around $1,800 and complete other related bankruptcy duties. In turn, your creditors will once again be legally obligated to cease their efforts to collect payment from you. While completing your bankruptcy duties right away can solidify your discharge in as little as 9 months, there will be a much heavier penalty when it comes to your finances and assets.
Want to know how much it costs to declare bankruptcy? Find out here.
Not only will your credit rating descend to an R9, but a record of the event will also remain on your credit report for 7 years following its conclusion, during which it will be nearly impossible to get approved for any kind of credit product. On top of that, if you owe a huge amount, your assets, such as your house, car, and even your RRSP may be seized as payment. While declaring bankruptcy may be a faster way out of debt, it certainly involves a much longer and more strenuous recovery.
Read this if you’re thinking of declaring bankruptcy in Richmond.
Want to pay off your consumer proposal and start building credit faster?
Eligible and Ineligible Debt Types
Even if your debt amount falls within the acceptable limits for a consumer proposal, it’s important to know that not all types of debt are actually eligible for the procedure. Generally, only unsecured debts, meaning those that do not involve any collateral are going to qualify because no outside parties hold possession over any of your assets.
Secured debt, on the other hand, is where things get complicated. When you apply for a large installment loan or other credit product, you’ll sometimes have the option of offering up your assets as security (collateral). This way, the lender has something to sell in the event that you cannot pay back what you owe. In exchange, you may receive a high credit amount at a lower interest rate. However, if they still possess temporary ownership over the asset when you file for a consumer proposal, that debt must be excluded from the procedure. The same can be said about debts that are held by legal or government-related entities.
Want to know how secured debt is treated during bankruptcy, check this out.
Below, we’ve included a few examples so you’ll have a better idea of whether your debts will or won’t be eligible for a consumer proposal in Richmond:
- Non-government student loans
- Credit card bills
- Personal lines of credit
- Non-collateral loans
- Non-credit bills (utilities, internet, cell phone, etc.)
- Unpaid income taxes
- Overdue mortgage payments
- Collateralized loans
- Car or other vehicle loans/leases
- Government granted student loans
- Home equity loans and HELOCs (home equity lines of credit)
- Lawsuits, traffic tickets, child support, and other legal judgements
When You Should Choose a Consumer Proposal
Though the prospect of filing a consumer proposal can be a daunting one, it’s still a safer choice than bankruptcy or, even worse, being stuck with massive amounts of consumer debt for decades to come. Nonetheless, remember that a consumer proposal does come with some serious consequences, so it’s still essential to act responsibly.
Only consider a consumer proposal when:
- You have $5,000 – $250,000 of unsecured debt
- Borrowing from friends or family is not an option
- Your savings, credit cards, and other more conventional solutions are not effective or available
- You don’t qualify for a debt consolidation loan or debt consolidation program
- Defaulted payments, interest, and late penalties are becoming more than you can handle without professional help
- Your creditors won’t accept a traditional debt settlement
- Your income is stable enough that you can afford any payments and administrative costs involved with the proposal
- You’re sufficiently prepared to handle a creditless existence during and possibly after your consumer proposal has concluded
Interested to know what a 100% consumer proposal is? Look here for the answer.
Getting the Help You Need
While a consumer proposal isn’t the most ideal way of dealing with debt in Richmond, it’s still better to act sooner, rather than later, and getting help should be your first step. Luckily for you, Loans Canada is here to guide you. Contact us today for more information about the consumer proposal process or apply to get started!