Self-Employed in Debt? Consider a Consumer Proposal for Debt Relief

^{By Bromwich+Smith Staff | 1800  words | Reading Time: 9 minutes  | Date: 2023/03/24}

Well we try to avoid that the majority of Canadian households accumulate one form of debt or another. Often, debt can be managed easily however when life situations change the balancing act can become difficult and you may need help understanding your financial situation. As a Canadian you qualify for debt relief programs and well there are several types available we suggest working with a licensed insolvency trustee like one at Bromwich plus Smith who are able to fully execute all options to you including a Consumer Proposal or Bankruptcy. It is important to know what options you have available and to understand the difference between these programs.

Consumer proposals

A consumer proposal is a legal document between you and your creditors in which an agreement is made for you to repay a portion of your debt over a set amount of time. Typically a consumer proposal will last up to five years but grants you the option to pay off early if your financial situation changes. Once you start the process of a consumer proposal your creditors must stop legal action including phone calls and emails, wage garnishee's, and legal threats. All interest stops and they will come to an agreement with your license insolvency trustee and yourself on a payment plan that works for you for self-employed individuals who have taken on additional debt from their business a consumer proposal can be a valuable resource to regain control of business debt and get back on track. Learn more

Other Debt Relief Option: Bankruptcy

In Canada, a bankruptcy is governed by the office of the Superintendent of bankruptcy through the bankruptcy and Insolvency Act and is executed by a licensed insolvency trustee. Bankruptcy will cover the majority of your outstanding unsecured debt which includes credit card bills, medical bills, payday loans, and student debt that is longer than seven years old. You may need to pay your secured debt including car loans or mortgage separately. A licensed insolvency trustee will be able to guide you on which of your debts are covered under bankruptcy.

Well a consumer proposal and bankruptcy are not the only options when it comes to debt relief they are often strong resources to know about. Depending on your current financial situation our debt relief team will be able to help guide you to which options are available to you and the pros and cons to each. They will be able to walk through how each option would affect your credit score as well as how your outstanding debt has already impacted your credit. 

As a small business owner, filing a consumer proposal will not affect your ability to remain in business. It may affect your personal credit score, but you won't be able to maintain your business including all assets, materials, equipment in order to continue operations. Learn more

What steps should I take?

The first thing you should do is to evaluate your current financial situation. This includes understanding the debt and expenses to your business as well as your personal finances. As a small business owner you have likely signed as a personal guarantee are on your small business loans this means your personal assets are at risk if you are unable to pay the business debt. Understanding all income coming into the business as well as any additional income from a side hustle, government programs, a spouse etc will help you understand the current scope of your situation.

Create a budget

You've likely created a budget in your personal life now it's time to evaluate a budget for your business. How much are you spending on stock or supply items? What other expenses are coming along with your business? You may have a office or rental space that you pay rent on, a warehouse, a work specific vehicle all of these are included as expenses to your company. Are you the sole employee of your company consider your wages along with any additional staff you may employ. Once you have a full understanding of what it costs to run your business take a look at the money that's coming in maybe you can re explore the value on the product or services you provide are you able to increase the price to make up any additional money?

How do I know if a consumer proposal is the best option for me?

If you are currently asking that question chances are you are struggling with overwhelming debt. Understanding if a consumer proposal is a good financial choice for you requires and understanding of all of your personal and business income expenses and debt. There are chances you may owe money to people that you are not aware of and a debt relief specialist will be able to help you understand any debts that you are unaware of. Well the majority of those in debt qualify for a consumer proposal it is important to know that it is not the right choice for everyone in some situations a bankruptcy maybe a stronger option. Alternatively there are many situations where filing for Consumer Proposal or Bankruptcy are not recommended. The debt relief team at Bromwich plus Smith is available to outline all options available to you even if that means you do not need our services. Sometimes knowing your rights and where to access information is all you need to overcome your debt on your own.

Will filing a consumer proposal negatively impact my credit score?

Yes filing a consumer proposal will have an impact on your credit score but the impact of your credit score will lessen overtime as your proposal continues in good standing. You may not be aware that your current financial situation may also be hurting your credit score. Eddie missed payments can show up on your credit score for up to three years and the longer it takes you to get caught up the longer that time is extended.

Can I qualify for credit if I am in a consumer proposal?

Yes, many lenders will consider you as a candidate for a loan even well in consumer proposal. Depending on the full situation you may be required to put down a down payment, or experience higher interest fees. As your consumer proposal continues on and you are able to show that you are paying your bills on time, you may be able to negotiate in lower interest rate. Bromwich plus Smith works with amazing partners who can help you obtain credit during your consumer proposal including credit cards, car loans, or mortgages.

This may be the ideal time to re explore your business plan. Do you see this business being profitable in the future? Do you want to continue with the business? Or has the experience and stress change your mind and are you considering a career change? These are all questions only you can answer. We understand that the past few years have been extremely difficult on small business owners many businesses have closed down and have been unable to reopen due to the pandemic. So many Canadians have lost income, livelihoods, and their passion for their small business. We understand the heart that goes behind creating a small business and watching it bloom into a successful opportunity. We are here to support you in any way possible to reach all of your goals and get your finances back on track.

If you are facing overwhelming debt brought on from your small business, know that you do not need to manage this alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life and your business back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. 

Related FAQ:

1. What is a consumer proposal and how does it work? 
A consumer proposal is a legal agreement between you and your creditors, where you make a formal proposal to pay back a portion of your debt over a period of time. The proposal is filed with a Licensed Insolvency Trustee (LIT) who will work with you to create a repayment plan that is affordable based on your income and expenses. If the majority of your creditors agree to the proposal, then it becomes legally binding for all of themeven the ones who did not agree.

2. Can a self-employed individual file for a consumer proposal? 
Yes, self-employed individuals can file for a consumer proposal. In fact, a consumer proposal may be a good option for self-employed individuals who have income that is dependent on their business.

3. Will a consumer proposal affect my credit score?
Yes, a consumer proposal will negatively impact your credit score. It will remain on your credit report for three years after you have completed the repayment plan. It is important to know that if you are contemplating a consumer proposal, you likely have missed bill payments or have creditors calling for payment. If this process has started your credit has already started to decline, and action is needed to get back on track.

4. What happens if I miss a payment on my consumer proposal? If you miss a payment on your consumer proposal, it could be cancelled and your creditors could resume collection efforts against you. It's important to make your payments on time to avoid any potential consequences.  If you are unable to make payment contact your licensed insolvency trustee right away to make alternative plans.

5. Can I negotiate the terms of my consumer proposal? Yes, you can negotiate the terms of your consumer proposal with your Licensed Insolvency Trustee. They will work with you to create a repayment plan that is affordable based on your income and expenses. Your payments will be based on what you can afford, not what your creditors are demanding.

6. Will a consumer proposal stop collection calls and legal action from creditors?
Yes, once initiated a stay of proceedings is put into place and will stop collection calls and legal action from creditors.

7. What debts can be included in a consumer proposal?

Most unsecured debts can be included in a consumer proposal, including credit card debt, personal loans, and tax debt. Secured debts, such as a mortgage or car loan, cannot be included. Student loan debt can only be included if the loan is older than 7 years.

8. How does a consumer proposal compare to other debt relief options, such as bankruptcy or debt consolidation? Consumer proposals are generally considered less severe than bankruptcy and can have a lower impact on your credit score. Debt consolidation involves taking out a new loan to pay off your existing debts, while a consumer proposal involves negotiating with your creditors to pay back a portion of your debt over a period of time. It's important to speak with a Licensed Insolvency Trustee to determine which option is best for your specific situation.