Filing a consumer proposal is a strategic step to safeguard important assets that could otherwise be at risk in bankruptcy. A consumer proposal is a legally negotiated agreement between you and your creditors, allowing you to avoid bankruptcy by offering to repay a portion of your debts while the remainder is forgiven. This option has become a popular alternative for those seeking relief from financial difficulties.
Advantages of a Consumer Proposal
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Retention of Assets: You can keep all your assets, including your home and car.
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Affordable Payments: Monthly payments are based on your budget, ensuring they remain manageable.
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Partial Debt Repayment: You only repay a portion of your total debts.
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Protection from Creditor Actions: Stops lawsuits, collection calls, and wage garnishments.
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Legally Binding Agreements: Once accepted, the proposal binds all creditors.
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No Interest on Payments: Payments are interest-free, making it easier to clear debts.
Disadvantages of a Consumer Proposal
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Eligibility Requirements: Not everyone qualifies to file a consumer proposal.
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Impact on Credit: A consumer proposal negatively affects your credit score.
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Excludes Secured Creditors: It does not address debts tied to secured assets.
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Risk of Default: Missing three consecutive payments nullifies the proposal, and the debt is reinstated.
Eligibility Criteria for Filing a Consumer Proposal
To file a consumer proposal, you must meet the following criteria:
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Your total unsecured debt must be between $1,000 and $250,000, excluding a mortgage on your primary residence.
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You must be unable to repay your debts.
Eligible Unsecured Debts Include:
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Bank loans
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Credit card balances
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Payday loans
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Finance company loans
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Income tax debts
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Student loans (if you’ve been out of school for 7+ years)
Why Would Creditors Agree to a Consumer Proposal?
Creditors must agree to the terms of a consumer proposal for it to proceed. While it might seem counterintuitive for creditors to accept less than the full amount owed, they are more likely to agree if the proposal offers more repayment than they would receive through bankruptcy proceedings.
For debtors, a consumer proposal is often preferable because:
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It protects critical assets like a home or car.
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It avoids the uncertainty of surplus income calculations associated with bankruptcy.
Impact of a Consumer Proposal on Your Credit
A consumer proposal remains on your credit report for a maximum of 6 years from the filing date or 3 years after completion—whichever comes first. For most people, this means the proposal is removed one year after completing a typical 5-year term. Despite its impact on your credit profile, you can begin rebuilding your credit score even during the proposal period.
If you’re considering a consumer proposal and need expert guidance, reach out to us today. Let us help you explore your options and regain control of your financial future.
