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📅 Last Updated: March 8, 2024
✏️ Written By Bryan Daly
🕵️ Fact-Checked by Caitlin Wood

We would all like to be in a safe place financially. However, that goal can be hard to achieve for a lot of people in Canada. With household debt levels on the general rise across the country, many residents of Regina are in similar positions, struggling with their day-to-day expenses. When all their income and savings are used up, a drastic solution may need to be considered.

In this case, we’re talking about a consumer proposal, one of the last solutions to consider before declaring personal bankruptcy.

The Process: Filing a Consumer Proposal in Regina

A consumer proposal is a large-scale debt payment plan that consumers are legally allowed to file under Canada’s Bankruptcy and Insolvency Act. Essentially, the process involves striking a deal with the creditors you owe money to. This deal, which must be initiated by a court-appointed licensed insolvency trustee, allows you to pay back a portion of what you owe, rather than the full outstanding amount.

What happens to your debt when you file for a consumer proposal? Find out here.

Under the appropriate circumstances, here’s how the process may go:

  1. You must have a minimum of $5,000 and a maximum of $250,000 worth of unsecured consumer debt in order to be eligible.
  2. If eligible, you’ll have an introductory consultation with your chosen trustee, wherein you’ll need to explain your debts and financial situation to them.
  3. Together, the two of you will draw up a legally binding proposal, the amount of which will be based on your current income. Your trustee will then offer said proposal to your creditors.
  4. Your creditors will have a meeting to discuss the terms of the proposal, during which they can accept or decline it.
  5. If all goes well, the proposal can go through. You’ll then begin making equally divided payments toward your trustee, usually on a monthly basis. You’ll also have to pay a certain amount in legal fees for each payment.
  6. Once the process has begun, any and all debt collection efforts, wage garnishments, mounting interest and penalties against you will cease.
  7. Over the course of your payment plan, you’ll meet regularly with your trustee to evaluate your progress. You may also be required to attend a number of credit counselling sessions during that time.
  8. Your trustee will send your monthly payments to your creditors until your full proposal amount is paid off. All payments must be completed within 5 years of the proposal’s acceptance.

The True Cost of BorrowingDo you know what the true cost of borrowing is? Click here to find out.

Eligible Debts

Now, before you file for a consumer proposal in Regina, consider the fact that not all types of debt actually qualify for such a procedure. Generally, only certain unsecured debts, which aren’t tied to collateral, are eligible, including but not limited to:

  • Outstanding credit card bills
  • Unsecured loans (personal, short term, etc.)
  • Personal lines of credit
  • Unpaid utility, internet, and cell phone bills
  • Tax debt

Certain unsecured debts are not eligible, including but not limited to:

  • Student loan debt, if you were a student in the past 7 years
  • Child support payments
  • Alimony payments
  • Court fines
  • Debts resulting from fraud or theft

Most secured debts (tied to collateral) are also not eligible, including but not limited to:

  • Car loan payments
  • Mortgage payments
  • Rural land and other valuable property
  • Secured loans
  • Home equity loans and lines of credit

When is a Consumer Proposal The Right Decision?

A consumer proposal is a procedure that should be carefully considered before you decide to file. In fact, as a consumer proposal can be just as harmful to your finances as it can be good, it takes even more consideration than the average debt relief option.

A consumer proposal in Regina is only appropriate when:

  • You cannot keep up with and have no ability to pay off your outstanding, unsecured high-interest debts
  • Your debt amount falls between the allowable limits
  • You’re trying to avoid bankruptcy.
  • You have a steady source of employment
  • Your income can support all payments and fees involved, in addition to your other regular expenses
  • You’re willing to attend credit counselling, learn proper budgeting techniques, and drastically change your financial habits
  • You’re willing to take significant damage to your credit report and would be comfortable living without credit products for several months, possibly years following the approval of your proposal
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The Effect on Your Credit

As we said, you may need to live with little to no credit for some time, following the acceptance of your consumer proposal, because your credit profile will be damaged by in the process. Remember, a consumer proposal in Regina is meant to be a solution to your debt issues. Unfortunately, such issues do not come without consequence.

Here’s what the effect on your credit may look like:

  • A record of your proposal will be listed in your credit report, where it will remain for 3 years following completion. Since it may also take you 5 years to complete your payments, your credit report may even be affected for a total of 8 years.
  • Your credit rating will drop to R7, one of the lowest ratings of all, showing that you are currently making payments toward an arrangement that settles your debts.
  • Your credit score will also decrease by a significant margin.
  • If your debts were bad enough, it’s possible that many of your credit accounts were frozen before the proposal, which in itself can cause many problems.
  • If and when you apply for new credit during or soon after your proposal, your potential lender can view your credit report, see the delinquency, and may reject your application.
  • If they do approve you, it may be at a much higher interest rate than someone with good credit who didn’t experience such a delinquency.
  • As a result, you may need to get by using just your income and savings, at least until you manage to improve your credit.

Why a Consumer Proposal is Better Than Bankruptcy

As we said, a consumer proposal is often the last line of defense for consumers who are trying to avoid declaring personal bankruptcy in Regina. People often wonder why bankruptcy is considered a more risky option. After all, similar to a consumer proposal, with a bankruptcy:

  • A legally binding agreement will be administered by an insolvency trustee
  • Any debt collection efforts and wage garnishments will cease immediately
  • A potentially huge portion of your debt will be stricken from your record
  • Certain unsecured debts are eligible, while some secured debts aren’t
  • If you make all your payments properly, you’ll be left with a clean slate
  • Mandatory credit counselling is involved. While this can sometimes be inconvenient, it can help you learn healthier financial habits

At first glance, bankruptcy might even sound more appealing because:

  • You won’t have to pay your creditors back. All payments go toward the court
  • If you have at least $1,000 worth of debt, you’re legally allowed to file
  • There is no set limit to the amount of debt you can have to be eligible

However, bankruptcy should only be considered as an absolute last resort, when your back is against the wall and you have so much debt that your creditors will not accept a proposal or settlement of any kind. That’s because filing for bankruptcy can be extremely damaging to your credit and finances.

For instance, following your bankruptcy filing:

  • Your assets (home, car, etc.) may be seized by the court as partial payment
  • You may have to make surplus income payments for a number of years
  • Your credit rating will drop to an R9, the worst of all
  • A record of your bankruptcy will remain in your credit report for 7 years per filing
  • Your credit score will decrease significantly

Under Debt Pressure?

If you’ve been struggling with debt problems, a consumer proposal in Regina might be the best option from you. As problematic as it can be to your finances, it’s likely better than being in debt for years to come. If you’re looking for more information about the consumer proposal process or about any other debt relief services that Loans Canada can provide, contact us by clicking the link below.

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