Are you struggling to keep up with your unsecured debts? Before filing for bankruptcy, you might consider a consumer proposal. This is a lesser-known way to get your debts under control. Let’s take a look at what it is, how it works, how it affects your credit rating and for how long.
What are Consumer Proposals?
A consumer proposal is a debt settlement arrangement filed through a Licensed Insolvency Advisor whereby you agree to pay back less debt than you owe. You can save a lot of money by filing a consumer proposal. It’s not unheard of for you to lower your debts by between 70 and 80 percent. Best of all, for making your agreed-upon payments in the consumer proposal, you’ll get to keep your assets and it will get rid of your debt. The debt amount you need to file a consumer proposal may vary by which province or territory you reside in.
A consumer proposal is legally binding, which means that once it’s filed and accepted, it will freeze the interest on your debts, not to mention stop the collection calls and wage garnishment.
How Does a Consumer Proposal Work?
Are you intrigued by the consumer proposal and the potential it offers for helping you get out from under your heavy load of consumer debt without surrendering your assets? If so, then you’ll want to find out more about the consumer proposal process and what will happen every step of the way during your application. We’ve put together this guide to explain the basics of the process.
Qualifying for a Consumer Proposal.
Not everyone with a significant amount of consumer debt will qualify for the consumer proposal in Canada. You must have at least $1,000 in unsecured debt and no more than $250,000 ($500,000 for married couples). Those with debt levels higher than these maximum thresholds will qualify for bankruptcy, but not for a consumer proposal. In addition, you will be able to offer a consumer proposal only if you have enough income to make some, but not all, of your monthly debt payments.
What Your Advisor Will Want to Know?
In order to determine whether or not the consumer proposal is the best option for your needs, your bankruptcy advisor will need to know certain information, including:
- your normal household expenses and income
- all of your liabilities
- all of your assets
- your marital status
Each of these factors will directly impact whether or not the consumer proposal is the best choice for you. If your debts do not outweigh your assets, for example, your Advisor will not recommend filing a consumer proposal with your creditors.
Preparing the Proposal.
If you and your Advisor determine that a consumer proposal is better for your financial situation than bankruptcy or any other debt relief option, you and your advisor will begin to craft a settlement offer. Based on your income and expenses, you and your advisor will determine the amount of money that you can reasonably offer towards the consumer proposal. Using that figure, a proposal will be drawn up that tells your creditors how much you can pay each month and makes an offer for debt principal reduction. Your advisor will also put together an Assessment Certificate for you. This is a legally required document indicating that all the right information was collected, and proves you learned of consumer proposal alternatives and that you have agreed to the proposal.
Then What?
Once the proposal is prepared, it will be submitted to your creditors. If they accept it, it will go into effect on the date specified. As long as you make your payments on time, you will not have to worry about an annulment of the proposal that will impact your finances severely.