As the largest metropolitan area in Saskatchewan, the city of Saskatoon currently has a population of just over 273,000 citizens. Unfortunately, it’s also one of the most expensive places to live in Canada, so consumer and household debt can be very problematic for many residents in the area.
If you’re one of those Saskatoon residents and you’re struggling with an unmanageable amount of unpaid debt, then it may be time to file a consumer proposal. Take a look at the following information if you’re interested in this effective legal process.
How Does the Consumer Proposal Process Go?
Let’s start with the basics. As mentioned, a consumer proposal is a debt management procedure that you can legally file for in Canada once you have between $5,000 and $250,000 worth of unsecured consumer debt.
Though the conditions of your own proposal will vary based on where you live, what your income is like, and what kind of debt you have, the process is relatively the same in every Canadian city, including Saskatoon. Typically, it goes something like this:
- The first step is to contact a Licensed Insolvency Trustee, who is an officer of the court and the only person who can oversee the filing of a consumer proposal. These officers usually work privately or with a larger firm and are trained to administer various debt relief solutions.
- Once you’ve found a trustworthy LIT, they will assess your financial situation. If your case is appropriate, they will reach out to the creditors that hold the majority shares of your debt and offer to settle it for less than you owe.
- Your creditors will then have 45 days to accept or decline the proposal. If they agree, you will pay down your final debt balance through monthly installments through your trustee. If not, the settlement will need to be renegotiated.
- Once the proposal is approved by the court, any accumulating interest, late penalties, or debt collection efforts against you should cease immediately. You will then have a maximum of 5 years to complete your monthly repayment plan. Throughout this period, you’ll be allowed to make early payments without penalty.
- During the process, your LIT will be in constant contact with the court and the proposal itself will become a matter of public record under the terms of Canada’s Bankruptcy and Insolvency Act. You may also be assigned various court duties, such as credit counselling sessions.
While all this might seem pretty straightforward, a consumer proposal, whether it’s in Saskatoon or elsewhere, can have a serious negative impact on your financial health, so it’s essential to get proper advice before you apply yourself.
What Happens to Your Finances After a Consumer Proposal?
Remember, in order to draw up a proper consumer proposal, your LIT will need to assess the amount of debt you have, as well as how healthy your income and employment situation is. If you truly cannot pay your debts in full, they will attempt to get your outstanding balance reduced and help you settle it on a monthly basis.
Then again, there are some real problems that could arise during and even after your payment plan is complete, which is why it’s extremely important to prepare yourself.
How Your Finances May Be Affected
Perhaps the most noticeable impact will be on your general finances. Regrettably, while you’ll be free from your unsecured debts, your bank account could be severely drained in the months that follow, especially when you factor in all your other expenses.
Although you’ll hopefully have a lower debt balance, you may still have to dedicate hundreds of dollars a month toward your payments alone. If you can’t keep up with your plan, be sure to inform your LIT immediately to avoid any further debt problems.
How Your Credit May Be Affected
While the effect may be less apparent initially, your credit report will also sustain some long-lasting damage that can make it harder for you to get approved for new credit products in the near future, at least until your finances have recovered.
Firstly, any credit accounts associated with the process will automatically receive an R7 credit rating until your proposal is finished. The event will also be recorded in your credit history for 3 years following your final payment. During and after this period, new lenders will consider you riskier, so you may only qualify for smaller, more expensive subprime loans and credit products.
Can All Debts Be Included in a Consumer Proposal?
Sadly, certain debts aren’t eligible for coverage under the average consumer proposal. Strictly speaking, a ‘secured’ debt cannot be included because a lender is holding onto one or more of your assets as collateral. Many legal or government-related debts must also be excluded.
Take a look at the following examples to know if your debt will qualify for a consumer proposal in Saskatoon:
Eligible Debts
- Unsecured loans & lines of credit
- Credit cards
- Payday loans
- Traditional student loans
- Income taxes
- Various non-credit bills (utilities, cell phone, etc.)
Ineligible Debts
- Secured loans & lines of credit
- Mortgages
- Home equity products
- Federal student loans
- Vehicle loans
- Legal charges (lawsuits, alimony, etc.)
How Does This Process Compare to Bankruptcy?
Bankruptcy is another legal debt management process that’s available in Saskatoon. Similar to a consumer proposal, this involves contacting a Licensed Insolvency Trustee to settle your unsecured debts through a series of court-assigned payments and duties, all of which will eventually be recorded for public knowledge.
However, bankruptcy is more effective in certain respects and could potentially be completed within a quicker time frame, if you have a strong enough income. Having said that, bankruptcy has a much heavier negative impact on your finances, credit report, and even the properties you own.
Key Differences
- You can technically qualify for bankruptcy once you have at least $1,000 of unsecured debt. Currently, there is no specified debt limit.
- Under the right circumstances, bankruptcy can be fully paid in only 9 months. This can include a base contribution to the court of $1,800 – $2,000, as well as many other legal fees, such as administrative costs and hiring an attorney.
- If your yearly income is higher than the designated limit in your province/territory, you might have to make surplus income payments over several months to several years, which can be tough on your finances.
- If your debts are large enough and your income doesn’t suffice, the court may order you to surrender your assets as a form of payment. This can result in your vehicle being seized, your RRSPs being drained, or your home being foreclosed. Luckily, this will not happen if you file a consumer proposal instead.
- The incident will remain on your credit report for 6-7 years after your final payment (depending on which credit bureau you check). Additionally, any credit accounts involved will receive the lowest credit rating of R9.
- This credit damage can make it nearly impossible to get approved for new credit. At this point, you may only qualify for risky, high-interest products, such as bad credit loans, payday loans, and secured credit cards.
When Should You Consider a Consumer Proposal?
Despite it being a slightly safer process than declaring bankruptcy, a consumer proposal can still cause significant harm to your credit report and tie up your finances for months, even years at a time. For those reasons, it’s once again imperative to only enter the process when you:
- Have $5,000 – $250,000 of unsecured consumer debt that you cannot pay off with more conventional methods, such as a debt consolidation loan, debt consolidation program, or traditional debt settlement.
- Have gotten professional advice from and are prepared to openly discuss your current situation with a certified credit counsellor, financial advisor, and/or Licensed Insolvency Trustee.
- Have a full-time job and an income that will support all your future payments (and court-related costs).
- Do not want to lose any of your assets or endanger your credit/finances for a longer period of time.
- Are willing to perform all your court-assigned duties, such as attending credit counselling sessions and meeting regularly with your LIT.
- Are financially prepared to get by using smaller, higher-interest credit products for several months/years (or without credit entirely).
Looking For the Right Debt Solution?
If you’re still not sure whether a consumer proposal in Saskatoon is the appropriate option for your debt problems, don’t hesitate to contact Loans Canada for advice. We can help you find the best Licensed Insolvency Trustees in your area or, if necessary, connect you with another debt management solution.
