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Debt has become a big issue among Canadians. The average debt among consumers in Canada – not including mortgages – is $22,800. That number alone is quite a bit, but many Kitchener residents are drowning in piles of debt much higher than that.
While individual efforts can be made to pay down debt, many times outside intervention is needed. Despite their best efforts, many Kitchener consumers require some help whittling down their debt and getting out of a financial predicament, and consumer proposals may be a good option after having exhausted all other avenues.
Let’s dive deeper into what consumer proposals are and whether or not they’d be a good fit for you.
What is a Consumer Proposal?
A consumer proposal is a legal arrangement in Kitchener that’s made between you and your creditors and is governed by the Bankruptcy and Insolvency Act in Canada. You’ll need to have a Licensed Insolvency Trustee (LIT) represent you in creating and submitting a consumer proposal in Kitchener.
A consumer proposal is usually a last resort before bankruptcy. If your creditors agree to your consumer proposal, you’ll be immediately protected from all of your debt collectors. From that point, a partial repayment program will be agreed upon and arranged in which you will repay whatever unsecured debt you still owe, and your creditors will forgive the remaining balance.
It should be stressed that an agreement must be made with your creditors before a consumer proposal can be carried out.
Video: Consumer Proposal Explained
What Are the Benefits of Filing a Consumer Proposal in Kitchener?
There a number of reasons why you might want to consider filing a consumer proposal in Kitchener, including the following:
- Putting an end to harassing collection calls
- Alleviating litigation threats
- Cutting down on your overall debts
- Freeing up more capital to be used towards other expenses
- Reducing the stress that comes with facing mounting debt
What is a Licensed Insolvency Trustee?
Licensed Insolvency Trustees (LITs) are experts who are qualified to provide guidance to consumers in Kitchener and anywhere in Canada who are experiencing serious issues with debt. They’re regulated by the federal government and deal with creditors on behalf of their clients during consumer proposal and bankruptcy filings.
For a more detailed look at what Licensed Insolvency Trustees do, click here.
When is a Consumer Proposal Better Than Bankruptcy?
When it comes to alleviating debt, bankruptcy is usually a last resort. Consumer proposals are generally the step taken before opting for bankruptcy, and there are several reasons why consumer proposals might be a better option:
Retaining valuable assets – When you file for bankruptcy, you’re generally at risk of losing some of your most valuable assets, including your home and vehicle (or at least equity in each). A consumer proposal, on the other hand, will still protect you from your creditors as a bankruptcy would, but you will still be able to retain all of your valuable assets.
More more manageable payments – The payments that you make to all of your creditors in a consumer proposal will usually be a percentage of your debt. Whatever amount you are obligated to pay will be dependent on your income, which means your consumer proposal will be designed specifically for you.
Cost – There are no direct costs associated with consumer proposals, such as administration fees, filing fees, or consultant fees. The only payments that you make are those made to your Licenced Insolvency Trustee, who will then make the payments to your creditors on your behalf to repay your debt.
Effect on credit rating – While a consumer proposal will have a negative effect on your credit score, a bankruptcy will be even more detrimental. A consumer proposal will leave an R7 rating on your report, while bankruptcy will leave an R9. Further, a consumer proposal will remain on your credit bureau for 3 years after completion, while bankruptcy will remain for 6 years after being discharged.
Check out this article to learn about rebuilding your credit after a consumer proposal.
What is Involved in the Consumer Proposal Process?
In Kitchener, the consumer proposal process will typically proceed as follows:
- Meet with a Licensed Insolvency Trustee in Kitchener
- Create a proposal based on your debt load, your current financial situation, your income, and your financial needs
- The trustee will then send the proposal to your creditors
- Your trustee will negotiate with your creditors on your behalf
- The creditors that hold the majority of your debt will have to agree to the proposal in order for it to be accepted
- If your proposal is accepted, you will be obligated to make payments to pay back your creditors whatever amount was agreed upon and will have 5 years to do so.
Take a look at this infographic to learn how to create a debt repayment plan.
Is a Consumer Proposal the Right Choice For You?
Consumer proposals are best suited for those who have a debt load of no more than $250,000. Debt loads over that amount typically would not be well-suited for a consumer proposal. In these cases, bankruptcy might be the only option.
In order to be eligible for a consumer proposal in Kitchener, you must be able to show that you are no longer able to pay down your bills when they’re due. You should also have a steady job and an adequate income in order to make the consumer proposal payments required.
Paying off your consumer proposal with a loan, click here to learn more.
What Types of Debt Can Be Included in a Consumer Proposal in Kitchener?
While consumer proposals in Kitchener may help to alleviate much of your debt, not all types of debt are covered with this option. Consumer proposals can cover:
- Credit card debt
- Lines of credit
- Personal loan debt
- Payday loan debt
- Certain student loan debt (only if you’ve been out of school for more than 7 years)
- Income tax debt
Generally speaking, most types of unsecured debt (which is not backed by collateral) can be included in a consumer proposal.
Are You Considering Filing a Consumer Proposal in Kitchener?
The decision to file a consumer proposal is a big one and should only be considered after careful consideration of your current situation and if all other options have been exhausted. That said, a consumer proposal can be a better option than filing for bankruptcy, which is the last resort.
If a consumer proposal is right for you, call Loans Canada and we’ll help put you in touch with a Licensed Insolvency Trustee who can help you get the process started.