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A consumer proposal is a federally regulated and legally binding process available to insolvent Canadian individuals. A Consumer Proposal provides for a reduction of debt owed to unsecured creditors, or an extension of time for repayment of the debt, or both.
A consumer proposal includes unsecured debt. Unsecured debt is any type of debt not secured by an asset and generally includes the following:
The first step in determining whether a consumer proposal is the best choice for you is to meet with one of our Licensed Insolvency Trustees to review all of your options. The steps for a consumer proposal are as follows:
Learn more about the consumer proposal process.
Advantages | Disadvantages |
---|---|
Avoid bankruptcy and associated consequences. | Proposal is a legislated process requiring full disclosure of all aspects of your finances. |
Formal, legally binding process means clear rules and expectations. | Rules and regulations can make some aspects of the process seem inflexible. |
Provides immediate protection from unsecured creditors (stay of proceedings). | Protection does not apply to secured creditors who may seize assets if you default on payment. |
Interest clock stops on debts included in the Proposal, except those falling under Section 178. | Interest continues to accrue on secured debts and debts falling under Section 178. |
Deals with all unsecured debts including credit cards, lines of credit, payday loans, trade suppliers, government debts (income taxes, student loans, medical service plan premiums) and debts owed to family and friends. | You cannot pick and chose who gets included in your consumer proposal, which may cause embarrassment if you personally know one or more of your creditors. |
Limited ability to defer monthly payments. | Proposal is deemed annulled when the payments are default in an amount equal to three months of payments. |
Impact on credit rating is less severe than bankruptcy. | There is a negative impact on credit rating and credit rating will need to be rebuilt upon completion of proposal. |
You maintain ownership and control of your assets, unless the Proposal provides otherwise. | Proposal cannot deal with debts secured against specific assets and you will continue to be responsible for the maintenance and costs associated with your assets - this could be troublesome if a primary cause of your financial difficulties is related to maintenance of expensive assets. |
Can pay out proposal term early if you have the financial ability. | Too much focus on paying out proposal early can sacrifice short term savings and other financial goals. |
Reduction of total unsecured debt is possible. | Creditors vote on the proposal and may reject an offer where it is perceived your Proposal is unfair or materially insignificant. |
You may hold a credit card during a proposal. | Due to impact on credit rating, access to credit may be limited during proposal term. |
Proposal payments in good standing can be considered by some lenders as part of a credit check during your proposal, such as when applying for a vehicle loan. | Be prepared to pay high interest rates on loans obtained during proposal. |
Consumer Proposal Pros
Consumer Proposal Cons
Upon filing the consumer proposal, there is an immediate stay of proceedings. This means that creditors cannot commence or continue collection activity for unsecured debts. The consumer proposal is a new arrangement with the unsecured creditors that allows an individual to pay less than the amount owing to their unsecured creditors. Once the creditors agree to the new payment arrangement, the individual proceeds to make the agreed payment(s) to the Licensed Insolvency Trustee’s office for the term of the consumer proposal. The individual also has to attend two (2) financial counselling sessions during the term of the consumer proposal which deal with budgeting and setting and achieving financial goals.
Once the creditors agree to the new payment arrangement, the individual proceeds to make the agreed payment(s) to the Licensed Insolvency Trustee’s office for the term of the consumer proposal. The individual also has to attend two (2) financial counselling sessions during the term of the consumer proposal which deal with budgeting and setting and achieving financial goals.
A consumer proposal may be the right choice if you:
Consumer Proposals and Bankruptcies are both government legislated options which can provide you with relief from significant debt problems. In addition, both debt solutions can only be administered by a Licensed Insolvency Trustee and provide a legal stay of proceedings which require creditors to discontinue harassing collection calls, garnishment or other legal proceedings.
Determining which, if either, option is an appropriate solution in your own unique situation depends on a number of variables. Let’s explore the advantages and disadvantages of both a Consumer Proposal and a Bankruptcy.
Many Canadians believe bankruptcy is the only solution to their debt problems. However, there are other options that provide relief from debt without having to file a bankruptcy. In some cases, a consumer proposal may be a viable alternative.
Download our ebook to review the basic facts about consumer proposals so you can understand how it works, its potential benefits and drawbacks, and how it compares to other debt-relief solutions.
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