Pros and Cons of Consumer Proposals (MNP 3 Minute Debt Break)

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lmost half of all Canadians are just $200 away from not being able to cover their monthly expenses. If you're feeling the financial squeeze, you're not alone. But what happens when unexpected costs push you over the edge? If you're grappling with debt but want to avoid the long-term effects of bankruptcy, a Consumer Proposal might be your solution.

What exactly is a Consumer Proposal? it's a legal process that lets you negotiate with your creditors to repay a portion of what you owe. Unlike bankruptcy, a Consumer Proposal allows you to keep your assets—your home, your car, and yes, even your tax refunds. The process starts with a Licensed Insolvency Trustee, or LIT for short. They’re the only professionals who can administer  Consumer Proposals and Bankruptcies, and they'll guide you through every step.

After meeting with your LIT, they'll help you draft a proposal that fits your financial situation. Your creditors then vote on it. If the majority say yes, you're good to go! You'll make fixed monthly payments that you can afford. Once you've fulfilled your obligations, you'll receive a Certificate of Completion, releasing you from most of your debts.

Now, let's talk about the advantages of a Consumer Proposal. First, a Consumer Proposal stops collection calls and any legal action from creditors. Your payments are interest-free, and you're not required to submit monthly income and expense reports. Plus, it’s a win-win: you pay less than what you owe, and creditors recover more than they would in a bankruptcy.

Your payments are fixed, so even if your income goes up, your payments stay the same. And if you’ve filed for bankruptcy before, a Consumer Proposal is less damaging to your credit report the second time around. Plus, you can even keep those credit cards with zero balances.

But there are some cons to consider. A Consumer Proposal usually takes longer to repay than bankruptcy—four to five years, in fact. And if your creditors don’t approve the proposal, you might have to file for bankruptcy anyway. Fixed payments can be a double-edged sword, too—changing them isn’t easy, and missing three payments can nullify the proposal altogether. Plus, it stays on your credit report for three years after completion.

A Consumer Proposal may be right for you, but weighing the pros and cons is essential. Consult with a Licensed Insolvency Trustee to explore all your options. It’s the first and easiest step you can make to take control of your financial future.

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