When you have a lot of debt, it can be hard to manage and even harder to get rid of, particularly when it’s high-interest consumer debt. Although some borrowers in Fredericton can deal with their debts using just their income, others will struggle with it for a long time and may eventually need a more serious solution.
What is a Consumer Proposal?
Filing for a consumer proposal in Fredericton involves a legally binding procedure that becomes a matter of public record under Canada’s Bankruptcy and Insolvency Act. Essentially, this procedure is meant to significantly reduce the amount of debt you have and allow you to pay back a large portion of what you owe. The amount you’ll actually end up owing will mainly be based on your income, savings, and the properties you own. If the proposal is filed without incident, you should ideally be able to pay back your remaining balance through a series of monthly installments.
Wondering if your creditors will accept your consumer proposal? Click here.
In Fredericton, a consumer proposal might be necessary under various circumstances, such as when:
- You have between $5,000 (minimum) and $250,000 (maximum) of unsecured consumer debt on your hands.
- You’re making a reasonable income that would support a number of monthly installments over a set payment period.
- You can also afford any legal costs that may be associated with the procedure.
- You’re able to cover all payments within a maximum time-frame of 5 years.
- It isn’t possible for you to pay back your full outstanding balance using any other conventional methods, like:
- Borrowing from friends or family
- Borrowing from your home equity
- Going to credit counselling
- Requesting a debt settlement
- Applying for a debt consolidation loan or program is not an option
Understanding Consumer Proposals
What Does the Procedure Look Like in Fredericton?
Since a consumer proposal is a legally binding process in n Fredericton, it can only be administered by a Licensed Insolvency Trustee; a court-appointed employee regulated by a branch of the federal government known as the Office of the Superintendent of Bankruptcy Canada. Finding one of these trustees is the first step you’ll need to take to properly file for a consumer proposal.
Afterward, the procedure is pretty straight forward. Here’s a quick layout:
- Your chosen trustee will register your case through the Court of Queen’s Bench New Brunswick.
- They will then contact the creditors you owe money to and attempt to broker a deal that reduces your outstanding balance.
- The creditors that hold a majority share of your debt will meet to discuss the terms of the proposal and will typically have 45 days to accept or decline it.
- If they accept, you’ll begin meeting with your trustee on a monthly basis so that you can pay your scheduled installments.
- You may also be required to attend several credit counselling sessions.
- The trustee will send your payments to your creditors until the remaining balance is no longer pending. All payments must be made within 5 years to avoid penalty.
- If you miss 3 or more payments, the proposal will be annulled and you’ll have to start all over again. However, you will have the option of completing your proposal early and potentially reduce your overall payment schedule.
Want to know how you can pay your consumer proposal early? Find out here.
Are There Debts That Won’t Qualify For The Process in Fredericton?
As we mentioned earlier, only your unsecured consumer debts are eligible for the consumer proposal process in Fredericton. This refers to any kind of debt that is not collateralized, which happens when you offer your house, car, or another asset as security for a loan or other large-scale credit product. Certain forms of government and legal debt also won’t be eligible. We’ve listed a few examples below.
Debts That Won’t Qualify (Secured) in Fredericton
- Car loans and other vehicles loans
- Collateralized loans
- Home mortgages and commercial mortgages
- Home equity loans and lines of credit
- Student loans granted by the federal government
- Other legal procedures (lawsuits, alimony, child support, etc.)
Debts That Will Qualify (Unsecured) in Fredericton
- Non-collateral loans
- Personal lines of credit
- Credit cards
- Bills from non-credit companies (utilities, cellular and internet providers, etc.)
- Hospital bills and other debts related to medical procedures
Click here to know if you can get approved for a loan while in a consumer proposal.
What Happens to My Credit After a Consumer Proposal?
One of the main reasons why a consumer proposal must be carefully considered is that the process can have a significant negative impact on your credit rating and credit report.
- Your consumer proposal will be reported to Canada’s credit bureaus (Equifax and TransUnion) once the procedure begins.
- As a result, your credit rating will drop to an R7, the third lowest category reserved for borrowers making payments toward a debt settlement arrangement.
- Once your proposal is over, a record of the process will remain on your credit report for 3 years.
- If your proposal takes 5 years to complete, the negative effect on your credit can last up to 8 years.
- During that time, many lenders, especially prime sources like banks, will not be as open to lending you new credit.
- You’ll have to work hard to improve your credit to reverse the effect.
That said, while the negative effect of a consumer proposal can be profound, that notion alone should not deter you from the process. Remember, if you remain in debt, the same (or even a worse) effect may occur. It’s far better to reduce your debts and deal with the consequences quickly, rather than waiting until the situation declines further.
Want to learn more about how credit scores are calculated? Click here.
When is Bankruptcy a Better Choice?
Although both solutions involve a similar legal procedure, bankruptcy can have a far worse and longer lasting negative impact on your finances. Below, we’ve included a few of the major similarities and differences between the two procedures so you’ll know what we mean.
Similarities
- Must be administered by a Licensed Insolvency Trustee.
- Once filed and approved, any collection efforts, wage garnishments, mounting interest or late penalties will end by order of the court.
- Only unsecured consumer debt is eligible to be settled.
- A series of payments over several months to several years is required for the process to be completed.
- Results include a decreased credit rating and a negative record on your credit report for several years following completion.
Differences
- During a bankruptcy, your assets (home, car, etc.) may be seized if they have enough collateral value, which won’t happen with a consumer proposal.
- To qualify for bankruptcy, you’ll need to have at least $1,000 of consumer debt. However, there is no debt limit like with a consumer proposal.
- Depending on the size of your income, the court may order you to make surplus income payments on a monthly basis until the process ends.
- Your credit rating will drop to the lowest category of R9 and credit report will retain a record of the event for 7 years per filing.
- New lenders will be even less willing to take you on as a client until you can fix your damaged credit status.
Declaring bankruptcy for a second time? Here’s what it might cost you.
Interested in Filing a Consumer Proposal in Fredericton?
If you’re currently struggling with your debt load and are interested in how a consumer proposal can help you, Loans Canada can match you with the best service provider in Fredericton.
