Clearing away your consumer debts can be quite a challenge when you have too much to handle with your income, savings, and other conventional methods. This is the case for many residents of St. John’s, where the average cost of living can be significant.
Although St. John’s consumers have debt that can come from many sources, it’s important to find a solution as quickly as possible, because things will only get worse the longer the situation drags out. If your debts are bad enough, you might even need to file for a consumer proposal.
Need a few debt management tips? If so, make sure you read this.
Can Every Debt Be Included in a Consumer Proposal in St. John’s?
A consumer proposal in St. John’s is a legal procedure that needs to be conducted and supervised by a Licensed Insolvency Trustee (click here for more information), then approved by the bankruptcy court in Newfoundland & Labrador. All actions performed by your trustee are regulated by the Bankruptcy and Insolvency Act and the whole event will become a matter of public record.
The procedure itself is a deal that your trustee in St. John’s will hammer out between you and the creditors or entities who hold a majority share of your unpaid debts. If approved, said deal allows you to pay a portion of what you owe or sometimes the full outstanding balance. Typically, you can pay the debt remaining via monthly installments over a maximum period of 5 years from the time of the filing. However, you can also pay your proposal early through larger or extra payments.
Unsecured vs. Secured Debt
All this said, only certain types of unsecured debt, as well as some non-credit related bills, can legally be included in the proposal in St. John’s. Unsecured debt qualifies as any kind that is not tied to an asset, such as your house, car, or other valuable personal property. This is common for smaller loans and many revolving products, such as credit cards and personal lines of credit. Non-credit related bills may include those from internet or cell phone providers, utility companies, even your overdue rent, and income tax payments.
On the contrary, secured debts, as well as those from the government or legal entities are not likely to qualify. Secured debt refers to anything tied to collateral, which is routine when you apply for a significant amount of credit, such as a large personal loan, mortgage, or vehicle lease. Offered security lessens the risk for the lender, resulting in approval for a higher amount of credit at a lower interest rate. However, since the lender retains temporary ownership over the asset’s title during your payment schedule and can sell it if you default, it must be excluded from a consumer proposal.
Debt that comes from legally obtained sources may include the bills from lawsuits, child support payments or alimony, as well as any traffic tickets or other court-ordered fines. Student loans that were granted by the federal government also won’t qualify. On the other hand, regular student loans that you received through your university or another educational facility should be eligible for coverage.
Want to learn how to tackle your debt load all on your own? Check out this infographic.When is a Consumer Proposal the Wrong Choice?
A consumer proposal is a drastic debt settlement technique that can come with some serious negative side effects, so there are times when it would definitely be the wrong choice for you. Remember, this procedure should be reserved for cases of extreme consumer debt and financial hardship. In other words, having a little bit of unpaid credit card debt is not a valid reason to file for a consumer proposal in St. John’s.
A consumer proposal is also the wrong choice when:
- Your debt total is less than $5,000 or more than $250,000. These are the designated consumer debt limits imposed by the Office of the Superintendent of Bankruptcy.
- You don’t have a full-time job or a steady income. You may have a number of monthly payments to make, so an income based on freelance, part-time, or contract work may not leave you with adequate funds.
- Other, less drastic alternatives are possible for you, such as:
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Offering a debt settlement to your creditors
- Borrowing from your HELOC (home equity line of credit)
- Going to credit counselling
Will My Credit Change During a Consumer Proposal?
Another reason that you must carefully consider a consumer proposal in St. John’s is because the process will cause your credit to fluctuate negatively. It’s also a reason that you should have a reliable and full-time source of income prior to the procedure. After all, this negative effect can be so significant that you may not qualify for any new credit products in St. John’s for several months, maybe even several years following your proposal.
Below, we’ve included a basic timeline of what happens to your credit during and after a consumer proposal:
- Once you start making payments toward your proposal, your creditors will report them to Canada’s main credit bureaus (Equifax and TransUnion).
- When this happens, your credit rating will descend to an R7, which is typical of any borrower in St. John’s who’s currently involved in a debt settlement arrangement.
- The event will be recorded on your credit report for 3 years after its completed.
- Both of these factors can also cause your credit score to decrease significantly.
- If you apply for new credit during or in the 3 years that follow the ordeal, any creditor involved may consider you less creditworthy after examining your report.
- If your existing credit accounts were already frozen, your income and savings may have to support you until you can improve your credit properly.
Should I Choose Bankruptcy Instead?
Although a consumer proposal can seem pretty daunting, it’s still going to have less of an impact on your finances than declaring bankruptcy in St. John’s. Since both options involve finding an insolvency trustee to oversee a legal debt settlement procedure, it can be confusing as to which one would work best for your case.
Under the appropriate conditions, bankruptcy can be helpful. For instance, if you have at least $1,000 of consumer debt, you’ll be permitted to file. There is also no debt limit for the procedure, so if you’re more than $250,000 in debt, it might be your best option.
Then again, bankruptcy comes with a much higher risk for your finances because:
- You may be ordered to make surplus income payments for several years if your average income crosses a specific limit designated by the Supreme Court.
- Your assets may be seized as payment. This can include your house, vehicle, the money in your RRSP account, even any “windfall” earnings you made during the procedure (lottery winnings, inheritance, etc.)
- Your credit rating will drop to the lowest category of R9.
- The event will remain on your credit report for 7 years with every filing. This will almost certainly prevent you from obtaining any new credit.
- These costs, coupled with your other daily expenses can cause serious stress to your finances and leave you with a lack of savings for nearly a decade, maybe even longer if you don’t complete all your bankruptcy duties responsibly.
Trying to calculate your upcoming bankruptcy payments? Read this first.
Considering a Consumer Proposal in St. John’s?
If your financial situation in St. John’s has gotten so unmanageable that you’re thinking about filing a consumer proposal, be sure to reach out to Loans Canada. We can help match you with the right service and the best provider in St. John’s.
