As a credit user and resident of Hamilton, it’s always possible to enjoy healthy finances and a good credit score, both of which come with many benefits. However, it’s also possible to fall into unmanageable debt at some point or another, particularly when you’re living in or around the city, where costs are often higher than in rural areas.
Unfortunately, when your consumer and household debt levels become overwhelming, it might be time to consider filing a consumer proposal. Although this legal procedure can be hard on your finances in many ways, it can also save you a lot of trouble in the long run. If you’ve been considering filing a consumer proposal in Hamilton, we have all the information you need.
What is the Consumer Proposal Process?
As mentioned, a consumer proposal is a type of legal procedure and is meant to help you pay back a large portion of your outstanding debts on a monthly basis, over a maximum period of 5 years.
This payment regiment can only be administered and overseen by an officer of the court known as a Licensed Insolvency Trustee (for more information about LITs, click here). Their task will be to negotiate a deal with any creditors or collection agencies who hold majority shares of your unpaid debts. Those entities will then have 45 calendar days to either accept or deny the proposal.
If accepted, any collection penalties, added interest, or other debt-related charges that have been laid against you should cease immediately, hopefully leaving you with a blank slate and the ability to gradually repair your finances. In turn, your trustee will periodically send your payments to your debt sources until the proposal is complete.
Though monthly installments are common, a consumer proposal can also be efficient because you’re allowed to pay it off whenever you want, through larger or more frequent payments. According to the terms of Canada’s Bankruptcy and Insolvency Act, the consumer proposal will then become a matter of public record.
Be Cautious
All this said it’s very important to understand that a consumer proposal in Hamilton is a serious legal procedure that is reserved for cases of extreme debt and will result in long-lasting damage to both your credit and financial profile.
Essentially, a consumer proposal is only an appropriate choice if you:
- Have amassed $5,000 – $250,000 worth of unsecured consumer debt that you cannot possibly pay back in full.
- Have exhausted every less risky debt management option available in Hamilton, such as debt consolidation or a debt settlement.
- Have spoken to a professional financial advisor or credit counsellor and determined that this procedure truly is your best option.
- Are steadily employed and earning an income that can support all the associated payments and court-related costs.
- Have a sizeable back-up savings account, just in case you become unemployed or experience another type of financial crisis during or after the proposal.
- Are prepared to accept the consequences that follow, such as hefty damage to your credit and decreased financial strength.
- Are willing to attend a number of mandatory credit counselling sessions and other potential court duties.
- Are committed to avoiding the more severe consequences that come with declaring personal bankruptcy (usually your last resort).
Does a Consumer Proposal Affect Your Credit?
Remember, when it comes to filing a consumer proposal in Hamilton, one of the major consequences that you must be willing to accept is the negative impact that the process will have on your credit report and credit score.
For instance, as soon as it begins, the event will show up on your credit report and will remain listed in your credit history for 3 years following the date of your final payment. On top of that, any credit account associated with the proposal will receive an R7 credit rating, meaning its involved with a special debt settlement procedure. All this damage can even cause your credit score to drop by a significant amount.
Since this type of procedure implies that you may have difficulty handling debt, many lenders will be less inclined to approve you for new credit products, if you apply during or in the years that follow your consumer proposal, that is.
If you do qualify, it will likely be through a subprime lender, where products will be smaller, have higher interest rates and less adjustable payment plans.
For more information about what factors affect your credit score, check out this infographic. How is Bankruptcy Different from a Consumer Proposal?
Despite their similarities, a consumer proposal is, in more ways than one, a far safer legal procedure to go through than a bankruptcy. Although bankruptcy can also leave you with a fresh start, it definitely comes with more negative repercussions and should, therefore, be avoided if possible.
Bankruptcy is similar to consumer proposal in that both procedures must be supervised by a Licensed Insolvency Trustee. In addition, the overall process involves a series of payments that will ultimately free you from the majority of your outstanding debts, as well as several credit counselling sessions and court-assigned duties.
However, bankruptcy is very different because:
- There is no maximum debt limit and you only need $1,000 of unsecured debt in order to qualify.
- If you owe enough, the Court may decide to drain the appropriate funds from your assets, such as your vehicle, home, or RRSP account, which will not happen during a consumer proposal.
- Additional court-related charges may apply, such as a base contribution of $1,800 – $2,000, as well as surplus income payments (if your gross monthly/yearly income crosses a specific threshold).
- If you complete all your assigned court duties, the bankruptcy process may be over in as little as 9 months.
- The negative impact on your credit is far worse because any related credit accounts will receive the lowest rating of R9 and a record of the event will remain in your credit history for 7 years following your final payment.
- That impact will make it next to impossible to secure new credit, especially from prime lenders. Until your finances and credit have recovered, you will likely only be approved for unfavorable, expensive products through bad credit lenders.
What is a 100% consumer proposal? This article explains.
What Debts Can Qualify for a Consumer Proposal?
Now that you have some idea of what happens to your debt after your consumer proposal is accepted, let’s talk about the types of debt that are actually be eligible for the process itself.
That’s right before you commit to this drastic legal procedure, you must once again be sure to have between $5,000 and $250,000 worth of unsecured debt. Some forms of non-credit debt can also qualify, as long as they don’t involve any collateral.
Contrarily, debts that have been secured by collateral cannot qualify because a creditor still holds temporary ownership over one or more of your assets (house, vehicle, etc.), which you may have initially offered them in exchange for more credit or a better rate. Certain government or legally assigned debts will also be excluded, as there is too much red tape involved.
Debts That Qualify
- Non-credit bills (internet, cellphone, etc.)
- Non-Federal student loans
- Credit cards (traditional, retail, etc.)
- Personal lines of credit
- Unsecured loans
- Payday loans
Debts That Don’t Qualify
- Legal fines (tickets, alimony, etc.)
- Federal student loans
- Secured loans
- Mortgages
- Home equity loans or lines of credit
- Vehicle loans
Can you pay off your consumer proposal early? Find out here.
How Loans Canada Can Help
If filing a consumer proposal in Hamilton is the right option for you, Loans Canada can help match you with the best professionals to can guide you through the process as smoothly as possible.
