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Consumer Proposals

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Consumer Proposals

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, families aren’t prepared to face the sort of financial pressure that can arise seemingly out of nowhere, especially without savings.

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 toward 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.

What to Expect When You File for a Consumer Proposal

When you file a consumer proposal you’ll work closely with a debt specialist who will deal with your creditors, file your paperwork, and help you every step of the way. Entering a legal proceeding without any idea of what might happen is a scary thing, especially when your money is involved. Here are a few things you can expect once you’ve filed a consumer proposal.

  1. The majority of people see their wage garnishment stop immediately
  2. Interest on your debts stops accumulating the day you file
  3. By law, debt collectors and creditors can no longer contact or harass you
  4. You won’t be in jeopardy of losing any of your assets
  5. You’ll have a maximum of five years to repay the agreed-upon portion of your debt

Are There Any Qualifications?

Unfortunately, consumer proposals aren’t for everyone, everyone’s financial situation is different and therefore not everyone can benefit from the same help. In order for you to be deemed eligible to file a consumer proposal there are several other conditions, besides being insolvent, which you must fulfill:

  • Be an individual; businesses are not allowed to file consumer proposals
  • You have more than $5,000 worth of unsecured debt but no more than $250,000 (this does not include your mortgage)
  • Have a stable income to ensure that you’ll be able to make monthly payments
  • Be unable to pay off your debts in full with interest
  • No prior consumer proceeding still open. The debt specialist handling the previous filing must have a discharged status
  • If you have a pending consumer proposal, you may not file another until all claims in your previous proposal have been fully serviced or you’ve filed for bankruptcy

Benefits of Filing a Consumer Proposal

While it’s understandable that seeking any type of debt relief is a hard choice you should understand that filing a consumer proposal can be beneficial to both you and your finances.

  • Surplus income isn’t something you need to worry about, as it is with a bankruptcy 
  • Your assets will not be seized
  • Your payments will never change or increase, even if you get a higher income. 
  • The negative impact on your credit report and credit score will not be as severe, compared to bankruptcy. A consumer proposal will usually lead to an R7 credit rating, whereas a bankruptcy will lead to an R9
  • You only need to pay back a portion of your debts

If you had to resort to bankruptcy and need to rebuild your credit, read this.

Disadvantages of Filing a Consumer Proposal

While filing for a consumer proposal could be exactly what you needed to get your finances back on track, it’s important to remember that a consumer proposal will not:

  • Allow you to pick which debts will be included in the process
  • Remove any alimony or child support payments or obligations you currently have
  • Remove your current student debts responsibilities
  • Include your secured debts (mortgage, car loan etc.)
  • Some creditors may not accept your proposal, regardless of your situation
  • 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 
  • Your proposal will stay on your credit report for six to seven years, a factor that will negatively impact future eligibility

What Happens to My Debt When I File a Consumer Proposal?

What happens to your debt during bankruptcy is quite straightforward, as is the legal status. Consumer proposals, however, can be a bit trickier. When you file a consumer proposal, you’re asking your creditors to accept repayment of a certain percentage of the total amount you actually owe them, over an agreed amount of time. 

Throughout the proposal period, your debts still exist in the eyes of the credit reporting bureaus (Equifax and TransUnion) and with the creditor who you were indebted to in the first place.  At the credit bureaus, your debts will continue to show, not just throughout the proposal process itself, but also for three years after the completion of your consumer proposal. You need to prove that the proposal was successfully completed to have the debts discharged and completely removed from your credit report.

How else does a consumer proposal affect your credit? Find out here.

Your creditors will receive payment from your debt specialist. The amount will depend on the specifications of the proposal. You need to be sure to finish all your duties within the proposal, or else you will be right back where you started. So, while you will not be making payment directly toward these debts during your consumer proposal, they are still active. They won’t disappear until after the consumer proposal and all your duties are completed.

Filing a Joint Consumer Proposal

Most types of debt can be shared with another person, for example when you co-sign a loan both individuals are equally responsible. Shared debt is most common among married couples or couples who live together, although this is not always the case. A joint filling is also possible where more than one person co-operates in filing a consumer proposal. The individuals who are filing the consumer proposal must have “all or substantially all” similar debts, there is no actual definition for what “substantially all” means so be prepared for your consumer proposal proceedings to be unique to your current debt situation.

Remember that while you might be permitted to file a joint consumer proposal, each individual is responsible for all of the payments. What this means is that if one of the people who agreed to split the payments can’t afford to pay them, the other person will be solely responsible for the payments. It is also possible for your proposal to be annulled should one or both of you be unable to make the payments.

For Debts over $250,000

Individuals with debt exceeding $250,000 (even after mortgage exclusion) can technically file for a consumer proposal but it’s not guaranteed that it will be accepted and the conditions under which it is accepted are much harsher.

Unfortunately, if your debt exceeds $250,000 we wouldn’t suggest that you try to file a consumer proposal. You could consider filing a Division 1 proposal as there are no limits on the amount of debt you can have under this type of debt relief. Do be aware though that if your Division 1 proposal is rejected by your creditors you will automatically be bankrupt. A debt specialist can assist you in determining whether to file a Division I or a consumer proposal.

Filing a Consumer Proposal When Bankrupt

After a declaration of bankruptcy, you might consider re-evaluating your situation. For instance, when you find a new job after filing for bankruptcy and consequently earn more income and therefore are liable for greater payments. Switching to a consumer proposal could reduce your monthly payments by extension of the repayment term and further make payments manageable. It is convenient for your creditors as well since you end up repaying greater portions of your debt. If you are presently bankrupt and are considering filing a consumer proposal, it is strongly recommended that you seek counsel from your specialist.

Speak With an Expert

Consumer proposals offer a viable alternative to bankruptcy for people under financial difficulties. To gather more detailed information concerning consumer proposals and consequently determine if you qualify, we can’t recommend enough that you speak with a debt specialist. A debt specialist will be able to provide you with information pertinent to your situation and guide you’re through whichever option you choose.

The sooner you get in contact with a debt specialist, the sooner you’ll be able to start your journey towards a better financial future for yourself and your family. If you’re interested in being matched with a debt specialist in your area, Loans Canada can help. 

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