If you are thinking that declaring bankruptcy may be your only way out of debt, you may want to consider filing a consumer proposal instead. With this arrangement, you will still be responsible for paying off a portion of your debts, but you will also be provided with immediate protection from debt collectors.
For many individuals who are considering bankruptcy, a consumer proposal is probably a better choice, but only if you qualify for this option and are financially capable of meeting the requirements.
What is a Consumer Proposal?
When you file a consumer proposal, you are assigned a consumer proposal administrator who is also a Licensed Insolvency Trustee. This individual will create a legally binding agreement that involves partial repayment of all of your unsecured debt. Your creditors will then be given the opportunity to vote on your proposal, and if they agree to the repayment plan, the court will move the proposal forward. You will then make a payment every month until the terms of your proposal have been satisfied.
Consumer Proposal Qualifications
When you initiate a consumer proposal, your situation will be carefully evaluated before you are allowed to proceed. The qualifications are fairly basic, but it will advantageous to know what will be expected of you before starting the process.
- Your debts must amount to at least $5,000, but the total may not exceed $250,000 (not including your home mortgage).
- It must be proven that you are incapable of paying what you owe to creditors without assistance.
- You must have regular, verifiable employment and prove that you can afford to make at least a minimal payment every month.
- It must be determined that a debt consolidation loan is not an option because your debts are too high.
If you do meet these qualifications, filing a consumer proposal may definitely be your best option, especially if your income is on the higher side. Bankruptcy filers who earn above a certain amount are typically penalized with surplus income payments. Also, if you have assets (possibly your home or car) that you want to protect, you will have the security of knowing that they cannot be seized under a consumer proposal agreement.
Consumer Proposal Benefits
In addition to not being fined for your income and being able to hold onto your assets, there are other benefits associated with filing a consumer proposal.
- The amount you pay at the time of the agreement is set in stone. Once you have determined how much you can repay your creditors, that amount cannot be raised if you experience an increase in pay or overall household income.
- The negative impact on your credit is not as severe as with bankruptcy. A consumer proposal will still damage your credit, but the majority of people who file a consumer proposal will emerge with an R7 credit rating. Bankruptcy filers, on the other hand, are typically left with an R9, which is the lowest possible rating.
- You will retain a sense of control. In many ways, declaring bankruptcy can feel like giving up completely. However, with a consumer proposal, you are at least paying off part of your debt, and this can have a positive effect on your self-esteem and motivate you to continue improving your situation.
- You will have freedom to make large purchases. Your repayment plan may take as long as five years to complete, but you will be able to buy bigger ticket items during this time. For example, if you need to replace your car with a newer, more reliable model, this will be entirely possible as long as you can afford to make the payments. Also, because a consumer proposal will most likely not completely destroy your credit, it will not be quite as difficult to purchase a vehicle after emerging from your plan.
Just remember that even though a consumer proposal may be a good alternative to bankruptcy, you should still explore other options before filing. You may find that you are eligible for a different solution (such as debt consolidation or credit counseling) that is even less damaging to your credit.
Consumer Proposal Limitations
While many who are currently struggling with debt may gain considerable relief by entering a consumer proposal, not all debts can be managed with a filing. So, if you have financial obligations that fall into certain categories, you will not be able to reduce what you owe with a consumer proposal:
- Child Support
- Student Loans
- Secured Debts (Home Mortgages and Car Loans)
If you are overwhelmed by your debts and are confident that filing a consumer proposal will be the best course of action to take, you can contact a proposal administrator for a free personal consultation. At this meeting, you should be able to gauge whether or not you qualify and weigh both the risks and advantages associated with this option.
Rebuilding Your Credit
If you are just emerging from a consumer proposal or are in the middle of completing a repayment plan, you may be concerned about how you are going to rebuild your credit. If you also need to buy a car, Canada Auto Loan has the perfect solution. We can connect you with a local dealer who is willing to work with your credit in order to get you approved for an auto loan. And after you purchase your vehicle, your credit rating will gradually increase with every timely payment you make. Our service is completely free and our process is fast.
So, fill out our simple, confidential and secure online application to get started today.