How Will a Consumer Proposal Get You out of Bankruptcy?
May 10th, 2021 by A Licensed Insolvency Trustee
How does a consumer proposal work? Well, it’s not hard, but you can’t do it alone, you need the help of a Licensed Insolvency Trustee. A Consumer Proposal keeps you out of bankruptcy by avoiding it altogether.
The goal of a consumer proposal is to combine all your existing debt with different banks, creditors, or even government agencies into a single easy-to-pay package.
The process is done by a Licensed Insolvency Trustee (LIT) who will evaluate your income and determine a healthy budget so that you can pay your consumer proposal monthly but still be able to honor other payments (such as utilities and groceries).
Is a consumer proposal better than filing for bankruptcy?
The main benefit of a consumer proposal is your assets are safe.
Unfortunately when you file for bankruptcy, you may lose some of your assets, depending upon their value and where you live in Canada. Losing these assets can be highly detrimental, and if your monthly income is stable enough to keep them and file a proposal, we recommend you do so.
After all, it’s much harder to get back on your feet when you lose your home or car. That’s why filing for bankruptcy should be seen as a “last case scenario” when a consumer proposal isn’t possible.
Will a consumer proposal affect my credit score?
Yes, but it’s a temporary setback in pursuit of a debt-free future.
When you file for a consumer proposal with a licensed trustee, your credit score will drop to an R7 rating.
Keep in mind though that the proposal will no longer show on your credit report 6 years after the proposal is filed, or 3 years after you’ve completed your payments — whatever comes first.
You can (and will) rebuild your credit score again, and how you can do so will be part of the free financial counselling sessions that you will be provided during the proposal.
Don’t let a hit to your credit score sway you away from a consumer proposal in Canada. After all, it’s more manageable to pay a single “debt package” instead of many debts with different interest rates.
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