What exactly is a consumer proposal?
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By Bromwich+Smith Staff | 738 words | Reading Time: 3 minutes, 41 Seconds | Date: 2022/01/07
When it comes to conquering your debt it can be difficult to determine what your first step may be and who to turn to. At the same time there are options in terms of how to approach dealing with your debt. One of these options is a consumer proposal.
You're probably asking, exactly what is a consumer proposal? There is a lot of information out there but to put it simply it is a legally binding agreement between you and your creditors to pay a reduced amount of the debts you owe within five years. Creditors will often agree to arrangements like this to receive less money on a regular schedule vs. endlessly waiting for a full payment that may never come. As such, your monthly payments are lower than what you would otherwise pay, and they don’t increase — even if your income rises.
Because of its legally binding nature, a consumer proposal must be administered by a Licensed Insolvency Trustee, according to the rules governed by the Bankruptcy and Insolvency Act of Canada.
While fees vary, your overall fees are part of your monthly payment and there will be no upfront costs. Your Licensed Insolvency Trustee will be sure to clearly lay this all out for you.
Reasons you should consider a consumer proposal
Here are the top 5 reasons to consider a consumer proposal over other debt relief alternatives:
- Keep Your Assets. One of the biggest advantages of a consumer proposal is the fact that your assets are protected.
- Avoid Surplus Income. Unlike bankruptcy where the more you earn the more you pay, consumer proposals have a fixed payment that never increases. If you expect your income to increase, consumer proposals are better than bankruptcy.
- Lower Monthly Payments. In a consumer proposal, you negotiate to repay only a portion of your debt. It is not unusual to see debts reduced by as much as 70% of the original amount owed. A consumer proposal is one of the best, and safest, debt consolidation options available. Interest stops during a consumer proposal, resulting in significant savings over a debt consolidation loan or second mortgage.
- Get Creditor Protection. As a legal process under the Bankruptcy & Insolvency Act, a consumer proposal provides creditor protection that will stop collection calls and wage garnishments. Once your consumer proposal is approved by the majority of your creditors, it is binding for all creditors.
- Avoid Bankruptcy. Many people need debt relief but want to avoid filing bankruptcy. If you feel you would like to repay what you can, a consumer proposal is a safe alternative that you should discuss with a Licensed Insolvency Trustee.
Who can file a consumer proposal?
A consumer proposal has to be recommended by a Licensed Insolvency Trustee.
To start, you must live or operate a business in Canada and have debt of over $1,000. You must also be insolvent, which means you cannot make your debt payments, or your unsecured debt exceeds your assets. As well, your debt cannot exceed $250,000 (excluding your mortgage).
You and a spouse (or any two individuals) can file a joint consumer proposal if the debts between the two of you are substantially the same. You can also file a consumer proposal during a bankruptcy, but the date of the consumer proposal will be listed as the same as the bankruptcy, so you can’t add debts incurred during bankruptcy to a consumer proposal.
Even if you are eligible for a consumer proposal, it may not be the best choice available for you depending on your particular financial situation. A consumer proposal is best suited to those who have some money to pay their creditors monthly, and who own assets they don’t want to lose during bankruptcy. However, all of this can be discussed with your Licensed Insolvency Trustee to ensure you are determining the best approach for conquering your debts.
In the end, only a Licensed Insolvency Trustee like Bromwich+Smith has the legal authority to administer a Consumer Proposal for you. In fact, if an online or offline debt relief service offers a Consumer Proposal, ask if they are Licensed Insolvency Trustees. If they are not, they will be required by law to engage an external Trustee, which could add unnecessary fees to the process.
Remember, we’re here to help you find the solution that best fits your needs. At Bromwich+Smith, we do this by offering an initial free, no obligation, confidential consultation by phone 1-855-884-9243 or video. You can also request a call back at our contact us page. We’re working with you to rebuild your worth.