It’s rare to get by these days without taking on some consumer debt, especially if you’re a regular credit user. If you’re living in Halifax, there are likely plenty of daily expenses on your list. While some consumers in Halifax may have no problem managing those costs, others in Halifax are currently struggling to keep up.
When typical debt management options aren’t helping you may need to consider a more drastic solution like a consumer proposal.
What Does a Consumer Proposal Entail in Halifax?
A consumer proposal in Halifax is a deal that can be struck between you and the creditors you owe money to. However, unlike a debt consolidation or a debt settlement, a consumer proposal is a legally binding document that needs to be administered by a Licensed Insolvency Trustee. The deal itself offers a type of settlement to your creditors that frees you from paying your entire outstanding debt amount, as well as from any wage garnishment, late penalties, and collection efforts that might currently be imposed against you.
Instead, you would be paying a large portion of what you owe through a series of equal monthly installments within a maximum time frame of 5 years. Each payment you make to your trustee in Halifax will be sent to satisfy your creditors. Although it will take some borrowers in Halifax the entire 5 years to complete their proposal, it’s also possible to send your trustee larger amounts of money on a more frequent basis, thus allowing you to pay it off early and fix your finances faster (for more information about paying off your consumer proposal early, click here).
When Should Someone File a Consumer Proposal in Halifax?
It can be a bit difficult to know when a consumer proposal in Halifax is your best strategy, being that they can be harmful to your finances under the wrong circumstances, but beneficial under the right ones.
Nonetheless, there are a few telltale signs that would make a consumer proposal appropriate for you, including but not limited to:
- You’re carrying a minimum of $5,000 and a maximum of $250,000 worth of unmanageable consumer debt.
- Defaulted payments, late penalties, and high interest rates are causing damage to your credit and severely draining your savings.
- You cannot get approved for a debt consolidation loan because you now have bad credit and no savings left.
- Declaring bankruptcy is not something you wish to go through.
- No other traditional payment methods are effective (credit cards, withdrawing from your home equity, borrowing from friends/family, etc.)
However, a consumer proposal in Halifax is definitely not appropriate when you:
- Have less drastic alternatives that don’t involve such a risky legal process.
- Don’t have a full-time source of employment (part-time, freelance, unemployed, contract, etc.)
- Wouldn’t be able to afford your upcoming monthly payments or afford your full proposal amount within the 5-year limit.
- Would have trouble surviving without credit products while your finances recover.
What Happens to My Credit During a Consumer Proposal?
One of the biggest problems of filing a consumer proposal in Halifax is that it can harm your finances significantly. Firstly, you could be making payments for a considerable amount of time, leaving you less income to deal with all your other regular expenses. On top of that, you may need to live without credit products in Halifax. That’s because some of the worst damage of all will be to your credit rating and credit report.
The Effect On Your Credit Rating and Report
When your consumer proposal is underway, your creditors will regularly communicate your progress to Canada’s credit bureaus (Equifax and TransUnion), who will update your credit report accordingly. This will cause your credit rating to drop to an R7, which is typical of anyone with an account registered with a special debt settlement program. In addition, a record of your proposal will stay listed on your report for 3 years after you’ve completed the proposal.
That means if you took the full 5 years to pay your proposal off, your credit report can be damaged for a total of 8 years.
The Overall Effect
Considering your consumer debts might be largely reduced, the initial negative effect on your credit isn’t so bad compared to what would happen if you let your debts drag out. That said, the main reason why you may have to live without credit products during and after your proposal is that your creditworthiness will also be heavily reduced. In other words, lenders will simply trust you less.
When you apply for new credit in Halifax of any kind, your lender can request your credit report from either bureau to determine your creditworthiness, meaning the likelihood that you’ll have trouble paying them back. They can then see the negative effect of your proposal and may consider you too risky to approve. This is a particular problem with banks and other prime lenders in Halifax and Canada in general, who usually can’t approve borrowers with high chances of defaulting.
To learn some ways of improving your credit score this year, click here.
Are There Debts That Won’t Qualify in Halifax?
While it would be great if every kind of debt was eligible for a consumer proposal, that’s unfortunately not the case. In reality, only unsecured debts will qualify. This refers to any credit product that doesn’t involve collateral, like your car, house, or another asset that you would have offered as security. Secured debt, on the other hand, will not be eligible because your lender still holds temporary ownership over your asset until you’ve paid your full outstanding balance.
Check this out for a better understanding of secured and unsecured debt.
Eligible Debts
- Credit cards
- Unsecured lines of credit
- Unsecured personal loans
- Overdue internet, cell phone, and utility bills
- Unpaid income taxes
- Traditional student loans (non-government)
Ineligible Debts
- Secured loans
- Secured lines of credit
- Home equity products (loans, HELOCs)
- Mortgages
- Vehicle loans
- Legal fees (tickets, fines, lawsuits, etc.)
Want to learn how to tackle your debt all on your own? Check out this infographic.When is Bankruptcy a Better Alternative in Halifax?
In truth, declaring personal bankruptcy in Halifax is only a better choice when you have over $250,000 of consumer debt. Although both solutions free you from your unsecured debts and any collection efforts against you, they are certainly different in terms of their negative after-effect.
Look at this article to know how secured debt is treated during a bankruptcy.
Borrowers in Halifax tend to think of bankruptcy as a miracle cure since it can swiftly eliminate most of your debt while sparing you making monthly payments toward your creditors. However, that cure comes with a price that can be extremely difficult to recover from.
Bankruptcy is also different because:
- You can technically qualify when you have at least $1,000 of consumer debt, but there is no limit to the amount of debt you can have.
- Depending on your income, it’s possible that you’ll need to make several months to several years of surplus income payments.
- If your debts are large enough, all your assets and even your RRSP may be seized to pay back your lenders. This includes any “windfall” money you make during the process, such as lottery winnings or inheritance.
- Your credit rating will drop to the lowest category of R9.
- You may be able eligible for discharge after 9 months of bankruptcy duties. However, the negative impact on your credit will last for 7 years per filing.
Wondering what happens to your house during bankruptcy? Find out here.
Looking For Debt Relief in Halifax?
If you live in Halifax and think a consumer proposal might be the solution you’ve been looking for, don’t hesitate to speak to Loans Canada. Remember, when you work with us, debt relief is never far away.
