What is a Consumer Proposal and How Does it Work?
A Consumer Proposal is an arrangement that’s negotiated with your creditors through a Consumer Proposal administrator (who is also a Licensed Insolvency Trustee). It’s an alternative to personal bankruptcy.
A legally binding agreement is put in place to provide you with immediate protection from debt collectors and arrange for a partial repayment of your total unsecured debt owing.
When you file a Consumer Proposal you agree to pay a portion of what you owe, and your creditors agree to forgive the balance.
What happens when you file a consumer proposal?
When you file a consumer proposal:
1. Most wage garnishments cease immediately.
2. Interest stops accumulating from the date you file.
3. Collection companies and creditors can no longer contact you for payment; it’s the law!
4. You are not in jeopardy of losing your house or other assets, as in bankruptcy.
5. You repay only a portion of your debt owing, with a maximum repayment period not exceeding 5 years.
A Consumer Proposal can be beneficial in the following ways:
“Surplus income” is not a consideration, as it is in bankruptcy.
Your assets are not at risk, and they will not have to be surrendered to the administrator as part of your proposal agreement.
Also, once your proposal has been accepted your payments will not increase if your income increases. You will owe nothing more than in the agreed upon terms of the proposal.
The negative effect on your credit score is generally not as severe as in a bankruptcy. Consumer proposals typically produce an R7 rating, whereas personal bankruptcy will produce an R9, which is the lowest rating, and why you should investigate all other options prior to choosing to file for bankruptcy.
If you file a consumer proposal, you have the opportunity to repay a portion of your debt. The sense of control you regain can bring a dramatic improvement in self esteem.
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Why would your creditors accept a Consumer Proposal?
Most creditors don’t want you to go bankrupt. In this case, they may expect to receive nothing at all. A proposal will generally allow them to recover more than they would in a bankruptcy.
What are the qualifications to file a Consumer Proposal?
A Consumer Proposal may be a viable solution for you if:
- You have debts over $5,000, but not over $250,000 (not including your home mortgage).
- You’ve got a good job, and can afford to make some payments each month.
- You just cannot afford to repay everyone in full with interest.
- You can’t get a debt consolidation loan because your debts are too high, even with your steady job.
- You don’t want to go bankrupt, because:
- With your income, you would be subject to surplus income payments; and
- You don’t want to lose any of your assets, such as your home or car.