Money problems can turn your life upside down. Luckily, there are ways to get your finances back under control with options set forth by the Bankruptcy and Insolvency Act (BIA). If you have too much debt, but don’t want to file Bankruptcy, you may want to read about Consumer Proposals. The top Consumer Proposals FAQs below can help you decide if this is the right step for you.
What is a Consumer Proposal?
A Consumer Proposal is a legal option available to those who can no longer afford to pay their bills. A Consumer Proposal stops collection efforts and allows you to pay what you can afford. With the help of a Licensed Insolvency Trustee, you design a repayment plan that your creditors will accept. A proposal may include:
- Reduction of the balance owed
- Reduced interest rate
- Longer payment
- Forgiveness of fees and charges
Your trustee will present your proposal to your creditors for approval. Once filed, creditors can no longer contact you or take legal actions against you. If your Consumer Proposal is approved, you must repay the new balance within five years.
How is a Consumer Proposal different from a Bankruptcy?
Bankruptcy requires your assets to be sold and the proceeds are used to pay back your creditors. You may also be required to make surplus income payments. When your Consumer Proposal is accepted, you make a lump sum or monthly payment.
Does a Consumer Proposal affect my credit?
A Consumer Proposal has a negative effect on your credit rating, but it does a lot less damage than a Bankruptcy. Credit report ratings go from R-1 for a perfect repayment history to R-9 for a Bankruptcy. A Consumer Proposal is assigned an R-7 and stays on your report for 3 years after you finish making payments. That’s 3 years less than a Bankruptcy.
What are the advantages of a Consumer Proposal over a Bankruptcy?
There are several advantages when you decide on a Consumer Proposal instead of Bankruptcy:
- You get to keep your possessions. When filing Bankruptcy, you may lose your home, car, and other assets, but with a Consumer Proposal, you won’t.
- You won’t have to pay surplus income payments. Bankrupt individuals must pay a percentage of the income that exceeds legal limits.
- Your creditors prefer a Consumer Proposal to Bankruptcy. They know they will be paid a higher percentage of what you owe.
- You get to keep your tax refunds. During Bankruptcy, tax refunds become a part of the bankrupt’s estate and are forfeited.
What if I miss a Consumer Proposal payment?
If you miss three payments or your last payment is more than three months past due, your proposal will be cancelled. Your creditors can begin contacting you and the previous balances are in force. If you pay quarterly, a payment that is over three months late will also void the proposal.
We hope you found the answers provided in the Consumer Proposals FAQ useful. If you still need a little more information about Consumer Proposals or if you are still deciding between a Consumer Proposal or bankruptcy, visit a Licensed Insolvency Trustee for a free consultation. The trustee will review your situation and help you decide if a Consumer Proposal is the right course of action for you.
Jillian Taylor-Mancusi, LIT
