Most major Canadian cities have a relatively high cost of living, including Markham which, like many other urban areas in Ontario, is an ever-popular place for people to call home. A high cost of living can often cause consumers to rack up debt that they can’t afford to. When this happens a more drastic deft relief option may be necessary.
If you’re currently dealing with excessive debt and you aren’t sure how to tackle it, filing a consumer proposal in Markham could be the solution you’ve been looking for.
When Should You File a Consumer Proposal?
A consumer proposal is a type of legally binding debt management procedure that you can file for by hiring a court-appointed professional known as a Licensed Insolvency Trustee (click here for more information about these professionals). Regulated under Canada’s Bankruptcy and Insolvency Act, this court worker would administer a process that becomes a matter of public record and can, under the right circumstances, free you from your unpaid debts.
What Happens to Your Debt?
Essentially, instead of having to pay back your full outstanding balance, the creditors who hold majority shares of your debt will be offered a type of settlement for a large portion of your owings, which they’ll have 45 days to either accept or decline. The size of the offer will be based on an assessment of your debt amount and financial health.
If the offer is considered fair, the resulting procedure will allow you to repay the remaining balance through monthly installments over a maximum period of 5 years. This should also end any wage garnishment, lawsuits, and other debt collection penalties that have been laid against you.
For more information about how your debt is treated during a consumer proposal, click here.
Knowing the Right Moment to File
Before you consider this solution, keep in mind that a consumer proposal is one of the most drastic debt management procedures available and can have a long-lasting negative impact on your finances and credit report.
The damage that’s caused can not only leave you with deteriorated financial health, but it can also make it extremely hard to get approved for new credit products during and for several years after you’ve completed your final payment.
To be safe, only consider filing a consumer proposal when you:
- Have spoken to a professional financial advisor and/or credit counsellor and determined that it is your best option.
- Have amassed $5,000 – $250,000 of unsecured consumer debt.
- Do not want to risk any of your assets (house, car, etc.).
- Can provide sufficient proof of your inability to pay in full, but have a good enough income to afford all the payments and court costs that follow.
- Are comfortable living with bad credit and limited credit products while your finances recover.
- Want to avoid the worse negative impact that comes from declaring bankruptcy.
- Are consistently defaulting on all your bills and have exhausted all less-drastic options, such as:
- Borrowing from friends or family
- Using a secured credit card or guarantor loan
- Going to credit counselling
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Offering a traditional debt settlement
Which Debts Are Eligible for a Consumer Proposal in Markham?
As mentioned, your debt must fall within the court-designated limits for you to qualify for a consumer proposal in Markham. Generally speaking, you must have a minimum of $5,000 and a maximum of $250,000 of unsecured debt, meaning no collateral can be involved. Many forms of non-credit debt will also qualify.
Contrarily, any debt that is secured by collateral must be excluded because a creditor still owns the rights to one or more of your assets. Debts that have been assigned by certain government or legal entities may be ineligible as well. To know if your debt qualifies, check out the examples below.
- Unsecured loans
- Credit cards
- Personal lines of credit
- Traditional student loans
- Payday loans
- Non-credit bills (internet, utilities, etc.)
- Secured loans
- Home equity loans & lines of credit
- Federal student loans
- Vehicle loans
- Legal fines (lawsuits, tickets, etc.)
How much debt should you have before you consider a consumer proposal? Learn more here.
Want to pay off your consumer proposal and start building credit faster?
How Does a Consumer Proposal Affect Your Finances and Credit?
Also mentioned was the fact that filing a consumer proposal in Markham can have a significant negative impact on your finances and credit report (check out this for more information), which is important to consider before you attempt this procedure.
Remember, a consumer proposal means that you could be making monthly payments over a number of years. Additionally, the process itself may involve several court-related fees, especially if you hire legal aid. Suffice to say, you must be able to comfortably afford all these costs in order to become debt-free.
Any deviation from your repayment plan without discussing the issue with your Trustee would lead to even worse results for your finances. However, one of the best things about a consumer proposal is that you are permitted to complete your plan earlier if you have the ability. Larger or more frequent payments are often allowed, again following prior discussion with your Trustee.
Your Credit Report
A record of your consumer proposal will also show up on your credit report, as your creditors should be reporting your payment activity to Canada’s two main credit bureaus (Equifax and TransUnion). Once the process is in effect, any credit account associated with the proposal will receive a credit rating of R7 until you complete your final payment. During the ordeal, your credit score may also drop significantly, giving you bad credit.
Once you’ve finished your proposal, your credit report will retain all this information for 3 years. If you adhere to your repayment plan and continue good financial habits afterward, the situation will improve. Obviously, a totally opposite effect will occur if you don’t complete your proposal as agreed.
Theoretically, if you were to apply for new credit during or in the 3 years that follow your proposal, your potential creditor can examine your credit report, see this information and decide that you are too risky to approve. This is especially true for prime lending institutions like banks, where approval standards are tougher.
Although you may still be approved by a subprime creditor, like a private lender or bad credit institution, products will likely be smaller and more expensive.
How is a Consumer Proposal Different From Bankruptcy?
A consumer proposal is one of two legally binding debt management procedures, the other being personal bankruptcy. Similar to a proposal, bankruptcy is a way to effectively reduce your unsecured debt through a series of court-assigned payments.
The process must also be administered by a Licensed Insolvency Trustee and may include several non-negotiable court duties, such as credit counselling sessions. Bankruptcy also results in some long-lasting damage to your finances and credit.
However, the two procedures are quite different in certain respects, particularly when it comes to the amount of debt you need to qualify, the conditions of your repayment plan, and the resulting impact on your properties and financial profile as a whole.
Your Debt Amount
By now, you’re aware of the amount and type of debt you need in order to qualify for a consumer proposal. Contrarily, you can technically declare bankruptcy as long as you have at least $1,000 of unsecured debt. On top of that, there is no set limit for the amount of debt you can have to qualify.
Your Repayment Plan
As mentioned, filing a consumer proposal in Markham will typically result in you making monthly payments over a period of 5 years or less. However, you’ll be able to make larger or more frequent payments to end your debt quicker.
A bankruptcy, on the other hand, will typically involve a mandatory base contribution of $1,800 – $2,000 toward the court. If your gross monthly/yearly income is over a certain threshold, you’ll also have to make surplus income payments over several months to several years. That said, if you manage to complete all your bankruptcy duties as agreed, then the ordeal may be over in as little as 9 months.
Can you pay off your consumer proposal early? Find out here.
One of the main upsides to filing a consumer proposal in Markham is that none of your properties will be at risk of court seizure. However, this will not be the case during a bankruptcy.
That’s right, if you owe enough, the court may decide to extract the funds from the equity in your home and/or vehicles. They may even drain your RRSP account and seize any ‘windfalls’ you earn during the process, such as lottery winnings or inheritance money.
Perhaps the biggest difference between these two debt management techniques is how your credit will be affected during and afterward.
With a consumer proposal, all your in-debted credit accounts will receive R7 credit ratings and a record will remain on your credit report for 3 years following your final payment date. All of this can harm your credit score, but you may still be able to get approved for a small loan by a subprime creditor without too much hassle.
Bankruptcy has a far more negative effect because all your credit accounts will receive the worst rating of R9. In addition, a black mark will stay on your credit report for 7 years. During and in the years that follow your bankruptcy, it will be nearly impossible to get approved for any favorable credit products. The only products you may be able to secure are risky ones, such as payday loans.
In the end, while a consumer proposal comes with its own risks, it is still a more manageable and less harmful alternative than declaring bankruptcy. Although your bankruptcy duties may be over faster than with the average consumer proposal, you may end up losing your assets and having your income heavily drained throughout. Recovering from the process will also be much more difficult and time-consuming.
In fact, bankruptcy should only be considered as your very last option when you’ve gotten professional advice and have exhausted all your less drastic alternatives.
Financial Troubles? Contact Us For Help!
If you’re thinking about filing a consumer proposal in Markham or you would like to avoid the process altogether, don’t hesitate to contact the experts at Loans Canada. We can help you find the debt management solution you’ve been looking for. Simply call us today or check out our website!