Do you require debt consolidation, but don’t want to file for bankruptcy? In this kind of case, a consumer proposal is how most indebted Canadians avoid the extreme end of the debt relief scale. They are not arranged lightly, but consumer proposals can be the best bet for a lot of people with insurmountable piles of debt. They have a much softer blow than filing for bankruptcy, with many safeguards in place to protect the debtor.
What is a Consumer Proposal?
A consumer proposal is an arrangement made between you and your creditors to settle your debts, negotiated by an Administrator of Consumer Proposals who is also a Licensed Insolvency Trustee (LIT). Legally, only a LIT can administer a consumer proposal, so you can’t try and come up with one on your own or with another kind of debt relief company. Do not get fooled by any company who says they can restructure your debt in this way – it will be a false promise.
To put it in other terms, a consumer proposal is an alternative to bankruptcy. Instead of declaring bankruptcy and taking on the burdens that this will bring, the consumer proposal allows you to pay off a portion agreed upon with your creditors, and they will forgive the balance. The agreement will protect you from debt collection harassment and won’t penalize you as heavily as a bankruptcy would.
Making The Right Choice: When Should You File A Consumer Proposal?
So when is a consumer proposal a debtor’s best option? Consumer proposals are chosen when repayment terms aren’t working, the debt level is below a certain threshold, and the debtor wants to avoid bankruptcy. The debtor must be a person (not a business), be insolvent, have debts totaling less than $250,000 (excluding mortgages on their principal home) and have a stable source of income. The debtor also can’t have any proposals already filed and open.
When it comes to solving your debt problems, a consumer proposal is always preferential to bankruptcy. You get to protect your assets, including home equity, investments, tax refunds, etc. It also will not follow you and your credit for as long, and the monthly payments won’t be as high. When meeting with a LIT, they will walk you through all your choices and guide you to the right one.
The Truth About Consumer Proposals
Now, a consumer proposal is not without its drawbacks. There is always the chance that the creditors don’t accept – it’s only legally binding if they agree to the terms your LIT has worked out. The consumer proposal will also stay on your credit report for three years after completion. If you can’t keep up with the agreed-upon payments and default on this debt consolidation plan, your creditors can take legal action; to make it right, you’ll have to go with another option, and that’s usually bankruptcy.
This is why it’s important to make the right decision for your debt consolidation. As mentioned at the top, consumer proposals are not entered easily. However, it’s not a decision you don’t have to make on your own; a LIT will walk you through your debt and help you come up with a plan that will appease your creditors while giving you some room to breathe. Call us today if this sounds like something you’d like to explore.