Benefits of a Consumer Proposal

Deciding to follow through on a Consumer Proposal is a tough decision to make. It’s not a position that anyone wants to find themselves in, but at the same time, it’s nice to know that there’s a reasonable path back to full financial freedom. Until then, the news isn’t all bad. When faced with insolvency, there are pros and cons to filing for Bankruptcy or submitting a Consumer Proposal. And if you’re in a place with your finances where submitting a Consumer Proposal is the right choice for you, then you may as well celebrate the small wins along the way.

Let’s take a quick look at what’s involved with submitting a Consumer Proposal and then move on to some of the best benefits you can expect through the process.

5 positive outcomes from your Consumer Proposal

A Consumer Proposal presents its challenges but it also has an upside. If you have unmanageable debt, submitting a proposal provides a number of benefits to your long-term financial well-being.

1. No Bankruptcy

This may seem a bit obvious but there’s a significant difference. A Consumer Proposal is always preferable to Bankruptcy if you’re in a position to commit to fulfilling the terms of a Proposal. Bankruptcies stay on your record longer, have a more negative impact on your credit rating, and will affect your day-to-day life much more than a Consumer Proposal. Working with your Licensed Insolvency Trustee on a manageable plan for a Consumer Proposal will provide you with more flexibility, and fewer negative consequences on your financial status. 

2. Protect some of your assets

One of the benefits of a Consumer Proposal is having far more flexibility with protecting your assets. As long as the creditors agree to your payment terms without surrendering assets, you can still keep vehicles, property, and smaller assets. It may prove more challenging if you have outstanding financial assistance on your vehicle, but it’s still up for discussion. When it comes to the rest of your personal property, personal effects and household items are exempt, but different provinces have different rules on the exemption amount. You have the choice to sell some big-ticket items if you want to help pay down your debt, but no one can make you do it. Likewise, you can keep investments like RRSPs — and one of the most important investments of all, your home, will stay in your hands as long as you can afford to pay your mortgage and the monthly payments agreed upon in the Proposal. Basically, as long as you make the payments you commit to in your Proposal — and it’s accepted by your creditors — you can keep all of your most important assets.

3. No more interest in your debts

As soon as your trustee files your Proposal, your debts will stop growing with interest. Normally, interest will be added to outstanding debts every month. Sometimes this is the very reason people are unable to pay off their debts on their own. Often the monthly interest is more than people can pay on a monthly basis. A Consumer Proposal freezes the interest, finally giving you the chance to pay money against your debt without watching it continue to grow. This is one of the biggest advantages of a Consumer Proposal on both sides. Creditors are able to feel confident that you’ll pay off what you commit to, and you get a chance to pay it without your payments being cancelled out by the endless interest rates.

4. No monthly reports

With a Bankruptcy, you’re required to submit monthly reports to your Licensed Insolvency Trustee about your income and expenses. But with a Consumer Proposal, most of the planning and reporting is done upfront. You and your trustee will establish fixed monthly payments. You get to have a say in the payment amounts, making sure they are within your means based on your income and expenses. All of this is approved by your creditors when they first accept your Proposal. Filing for Bankruptcy comes with a lot of monthly check-ins. But if you file for a Consumer Proposal, you’ll be left to simply live your life and make your payments until the agreed upon debt is paid in the agreed upon time.

5. Pay less than what you owe

The whole point of filing for a Consumer Proposal is that you aren’t currently in a position where you’re able to repay all of your debt — either all at once or in a reasonable time. Between interest rates, the amount of debt, and your payment deadlines, the creditors are lining up putting you in an impossible financial situation. However, by working with your Licensed Insolvency Trustee to submit a Consumer Proposal, you can either pay 100% of your debt without any fees or your trustee can negotiate to ultimately repay less than you owe. This negotiation will be based on your income and the time period you commit to repaying your debts, anywhere from three months to five years.

Live your best debt-free life

Once you have fulfilled the duties of your Consumer Proposal and repaid all of your debts, it’s time to move on with your life. Use the skills you learned from your financial counselling. Continue to seek advice from your trustee as needed. And stay on top of your debts on a monthly basis by planning, budgeting, and sticking to it. You’ve worked hard and now it’s time to enjoy it. For a detailed description of everything Consumer Proposal related, check out MNP’s full Consumer Proposal 101.

Next Blog: Part 9: Discharge Period