In Canada, Consumer Proposals have become a very popular option for those who are facing serious debt problems; in 2019, nearly 83,000 people filed Consumer Proposals in Canada.
A Consumer Proposal is a legally binding arrangement with your creditors that lets you settle your debts for less than you owe. If you are struggling with debt, it’s an alternative to Bankruptcy which you may want to consider. Like Bankruptcy, a Consumer Proposal can only be filed through a Licensed Insolvency Trustee.
There are informal proposals in the marketplace, which are often offered by credit counselling agencies. However, those do not have the same protections that a Consumer Proposal has, and have substantial additional costs. A Consumer Proposal will stop collection attempts from creditors, including garnishments, stop interest and penalty accumulation, and eliminate your unsecured debt.
The Consumer Proposal will stop interest charges, and immediately put a stop to collection from your creditors, including garnishments. Best of all, payments under a Consumer Proposal are based on what you can afford to pay, rather than what you owe. You can meet with a Licensed Insolvency Trustee to get the information and advice you need with no upfront cost.
Here are five reasons why you might want to consider a Consumer Proposal:
#1: Your debt is out of control and you need relief.
Debt trouble often snowballs, creating bigger problems if left unchecked. For example, if you skip a credit card payment because you can’t afford to pay it by the due date, you are charged an overdue fee. This overdue fee could push your balance past the credit limit, causing you to incur an additional fee. This kind of “piling on” of debt makes it very difficult to regain control of your finances. If you are having difficulty paying your debts as they become due, you may need professional help to get things back under control. A Consumer Proposal gives you a way to do that, within a well-regulated system designed to help Canadians with debt issues.
#2: You don’t want to go bankrupt.
For many people, a Consumer Proposal is an attractive alternative to Bankruptcy. While Bankruptcy offers you a fresh financial start by erasing unsecured debt, it has different requirements than a Consumer Proposal. In a Bankruptcy, you need to keep detailed financial records and report your monthly income to your trustee. If you own assets of value that are not essential — perhaps a recreational boat or a summer cottage — those may need to be liquidated and the funds paid to your Trustee for your creditors. With a Consumer Proposal, once the proposal is accepted by the creditors, you only need to make your monthly payments. There is a requirement to attend two financial counselling sessions, but no requirement to keep and submit detailed income and expense statements. While the value of those non-essential assets will need to be included in the total amount you pay to your creditors during the proposal, you will not lose assets that you wish to retain.
#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 all of your debts — essentially, you owe more than your own. With the help of your Licensed Insolvency Trustee, you will work out how much you can afford to pay and over what period you can realistically make payments — 5 years being the maximum allowed. Your creditors will have the opportunity to vote for or against the proposal. Since a Consumer Proposal must pay the creditors more than they would receive in a Bankruptcy, the creditors will usually vote for the Consumer Proposal.
#4: You can afford to pay back some of your debts.
If you can afford to pay back a portion of your debts, and you feel it is important to pay the creditors what you can, a Consumer Proposal is a good solution for you. You and your Trustee will be designing a proposal that gives you the payments you can afford, over the period of time that works for you.
One caution: it would not be advisable to file a Consumer Proposal if you do not have a steady income that will allow you to make regular payments. You also need to carefully consider whether your employment is long term, and secure. Lastly, if you are planning any changes that would impact your income, such as a move or increasing your family size, you will want to be sure that you feel confident that you will be able to meet the obligations of the proposal for its full length. If not, Bankruptcy would be a quicker and cheaper option for you, even though it might not satisfy your desire to pay back at least some of your debt.
#5: You want to stop a garnishment and other collections from creditors.
A Consumer Proposal is one of only two 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 are seeking help for your debt. Some credit counselling companies claim to be able to stop collection activity from creditors, but only a Consumer Proposal or a Bankruptcy can legally stop all collection activity, including garnishments. Only a Licensed Insolvency Trustee, licensed by the Canadian government, can administer a Consumer Proposal or a Bankruptcy.
How to get started
If you’re dealing with debt and want to pay back at least a portion of that debt, you are likely considering a Consumer Proposal. A consultation with a Licensed Insolvency Trustee (LIT) can help you determine whether or not it’s the right option for you. There is no charge for an initial consultation to provide you with the information you need to make a decision. Contact LCTaylor today.
Leigh C. Taylor, LIT
