The Benefits and Weaknesses of a Consumer ProposalBy Caitlin in Finance
Every year, millions of people find themselves facing insurmountable financial troubles. For many, financial hardships aren’t a result of wrongdoings or poorly planned actions; in many cases, a loved one dies, a business closes or an accident happens. For the average family, life can be just fine one day and in turmoil the next. In many cases, families aren’t prepared to face the sort of financial pressure that can arise seemingly out of nowhere, especially without savings, leading to a devastating downward spiral than can quickly go out of control. Before long, people resort to desperate measures, such as payday loans, downsizing their houses, and selling essentials like cars or priceless objects like valuable family heirlooms just to make ends meet. Eventually, the burden may become too much, making filing for bankruptcy the only feasible option.
There comes a point in a period of financial turmoil where there is nowhere left to go and no chance of recovery. It is at this point when the idea of filing for bankruptcy may start to seem like it could be the only way out from underneath a pile of debt. For some people, this might in fact be the case and filing a petition for bankruptcy might truly be the only solution. When debt gets far too high and the earnings are far too low, wiping the slate clean can be the only way to turn things around once and for all. However, there are some additional measures that can be the saving grace a family needs, all without the need to take the extreme steps towards filing for bankruptcy. Consumer proposals, for instance, can be an effective way of managing a tumultuous financial situation without taking any outstanding measures to help families get back on track.
So, what is a consumer proposal and how does it differ from filing for bankruptcy? In bankruptcy, an individual essentially trades what can often be largely irreparable credit damage and potentially assets and wages for the chance to alleviate most debts and start over clean with little or no debt, depending on circumstances. Filing for bankruptcy is a legal action that often involves courts and lawyers, making the overall process costly and complicated (click here to see when you should be applying for bankruptcy). A consumer proposal, on the other hand, is essentially a deal with a lender to partially forgive and fully restructure your outstanding debt into a smaller sum with a payment plan you can afford in order to help you get out of debt in a reasonable way. Rather than simply consolidating your existing debt with another loan, a consumer proposal reduces the total amount owed, often by up to eighty-five percent, and provides a payment plan that can spare families the the added costs from the painful accrual of interest.
When it comes to alleviating the burden of excessive debt, a consumer proposal is one of the easiest ways to get back on the right path. While other approaches, such as loan consolidation, can be effective, a loan is still involved with a steadily growing sum of interest each month. A consumer proposal leads to a fixed monthly payment intended to pay off the sum, no interest payments required. Unlike in bankruptcy, debts are not completely forgiven but are instead reduced and controlled. In bankruptcy filings, assets that cannot be paid for often must be repossessed to cover costs. This is not the case in a consumer proposal; you can maintain your assets and lifestyle while making monthly payments on your debt, all without the risk of inflated interest rates and a rising payment amount. This provides families a way to get things organized without the pain and risk that bankruptcy or loan consolidation can provide.
There are several criteria that must met in order to qualify for a consumer proposal. First, you must be able to pay off a portion of your debt. If you cannot, bankruptcy is your only option. You also must have more debt than what you own. This means that if you have an expensive home that exceeds the value of your debt, you are not a good candidate for a consumer proposal. Further, your unsecured debt should not exceed $250,000. Lastly, you must have the ability to make set monthly payments. If you meet all of these standards, a consumer proposal might be the solution for you. Be sure to first consider your other options, including loan consolidation or speaking to a credit counselor, before deciding that moving forward with a consumer proposal is right for you.
Despite the numerous upsides to consumer proposals, there are always downsides to any debt relief programs and consumer proposals are no different. First, there are some creditors who may not accept your proposal, regardless of your situation. Additionally, if you default on a proposal, you will not be eligible for a second so do not file for assistance unless you are sure you can see it through. Creditors may also charge you a fee of around $2,000 for participating in a consumer proposal program and your proposal will stay on your credit report for six to seven years, a factor that will negatively impact lines of credit and loan rates and eligibility. It is crucial that you do your homework before you settle with a consumer proposal.
It is crucial that you do your homework before you settle with a credit proposal.
When financial peril strikes, it may sometimes feel like there is nowhere to turn. Consumer proposals are debt elimination techniques intended to avoid bankruptcy filings in a controlled way that reduces the overall sum of what you owe. While there are advantages and disadvantages to every financial solution, individuals who take advantage of consumer proposals can reduce debt, minimize monthly payments and take the proper steps forward to reach a brighter tomorrow. If you are facing the possibility of losing your house, are unable to find a new job and repay obligations or are buried in debt with nowhere else to go, a consumer proposal might be a good option for you. If you meet the criteria and are comfortable with the potential consequences, consider what reduced debt and fixed payments without accruing interest could do for your financial security.