In Canada, consumer proposals are becoming an increasingly popular option for those who are facing serious debt problems; in 2012, nearly 47,000 people filed consumer proposals. A consumer proposal is a legally binding arrangement with your creditors that lets you settle your debts for less than you owe. And if you’re struggling with debt, it’s an alternative to bankruptcy you may want to consider.
Here are five reasons why:
#1: Your debt is out of control.
Debt trouble often snowballs, creating bigger problems if left unchecked. For example, say you skip a credit card payment because you can’t afford to pay it by the due date. As a result, you are charged an overdue fee. This overdue fee pushes your balance past the credit limit, causing you to incur an additional fee. When debt starts to get out of control, or if you can no longer afford to pay your bills, it’s very difficult to regain control of your finances on your own. A consumer proposal puts you back in control of your finances by stopping interest and allowing you to make payments you can afford.
#2: You don’t want to go bankrupt.
For many people, a consumer proposal is an attractive alternative to bankruptcy. While bankruptcy does offer you a fresh financial start by erasing many of your debts, it doesn’t come easy. With bankruptcy, you will lose many of your possessions. A first bankruptcy lasts nine months, and during this time you will have to keep detailed financial records and report your income to your trustee each month. With a consumer proposal, however, you won’t lose any of your possessions, and your payments remain the same unless you choose to pay more.
#3: You don’t have enough money to repay all of your debts.
In order to qualify for a consumer proposal, you have to be insolvent. This means you can’t afford to pay all of your debts by their due date and your assets aren’t enough to pay back your debts.
#4: You can afford to pay back some of your debts.
If you can afford to pay back a portion of your debts, but can’t afford to pay back everything you owe with interest, a consumer proposal is a good solution. In order to file a consumer proposal, you must have a steady income that shows you can make regular payments.
#5: You want to stop harassment from creditors.
A consumer proposal is one of the only ways you can legally stop collection activity from your creditors. When you file a consumer proposal, by law all collection activity—from phone calls to wage garnishment—must stop. This is important to know if you’re seeking help for your debt. Some companies claim to be able to stop collection activity from creditors, but a consumer proposal or bankruptcy are the only times they are legally required to stop.
If you’re dealing with debt but don’t want to file bankruptcy, it’s time to consider a consumer proposal. A consultation with a bankruptcy trustee can help you determine whether or not it’s the right option for you.