The Solution to Overwhelming Debt. What exactly is a consumer proposal? 

_{By Bromwich+Smith Staff | 1027 words | Reading Time: 5 minutes, 07 Seconds | Date: 2023/03/03}

With the cost of living continuing to rise, Canadians are looking for debt relief with many choosing a Consumer Proposal- but what is a Consumer Proposal and how can it help with debt management?

With the media continuing to report on the latest insolvency numbers we should take a step back and explore what that truly means. Insolvency, is the inability to pay off your debt. So if you find yourself in a situation where you have more bills coming in than you have money to pay you are insolvent. You may choose to work at your debt on your own, cutting back your expenses and figuring out a budget that allows you to pay down your debt. For many, the debt is too much and they are not able to pay it in full. A Licensed Insolvency Trustee will be able to guide you through your  debt relief options including a Consumer Proposal. 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.

What is a consumer proposal?

In the most simple understanding, a Consumer Proposal is a legally binding agreement between you and your creditors to pay a reduced amount of the debts you owe within five years. A Licensed Insolvency Trustee will work directly with your creditors and propose a payment option to them. This is often a win-win situation, as your Trustee can typically reduce what you owe up to 80% with your monthly payments being lower than what you are currently paying towards your debt. Your creditors will be paid more through a Consumer Proposal than with a Bankruptcy and typically will agree to the proposal.  

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. 

Why choose a Consumer Proposal?

Here are the top 5 reasons to consider a consumer proposal over other debt relief alternatives:

1. Keep Your Assets. One of the biggest advantages of a consumer proposal is the fact that your assets are protected. 
2. 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.
3. 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.
4. 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.
5. 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. 

Do I qualify to file a Consumer Proposal?

•  Do you live in or operate a business in Canada?
•  Is your debt excluding your mortgage between $1,001 and $250,000?
•  Are you insolvent? Meaning you cannot make your debt payments, or your unsecured debt exceeds your assets.

If you have answered yes to the above three questions, than you are a candidate for a Consumer Proposal.

Are there Disadvantages with Consumer Proposals?

• Know which debts can be discharged. Commonly, Secured debts ( secured credit cards, car loans, mortgages etc), child support payments and debts due to fraud are not eligible. Student loans may be considered if you have been out of school for more than seven years
• Time. A Consumer Proposal typically takes longer than other debt repayment options including bankruptcy. Due to your payments being lower, the amount of time for payments can go up to five years. You are able to pay off your proposal earlier if your financial situation changes.
• Credit Score.  You will see a decrease in your credit score, but it will not be the same as a Bankruptcy. It is important to know that if you are already struggling to pay your bills, your credit score has already been affected. During your proposal,  you can rebuild your credit, obtain a secured credit card and in many cases work with lenders to purchase a vehicle.
• Your creditors may not agree. Your Trustee will put together a proposal and submit to your creditors. Your creditors will have the ability to review and agree or counter offer the payment plan. Working with a Trustee who knows you’re your creditors will give you a better chance at having the proposal accepted. Over 90% of Consumer Proposals submitted through Bromwich+Smith are accepted on the first offer. Learn more about advantages and disadvantages of consumer proposal

Even if you are eligible for a consumer proposal, it is not automatically the best choice for your 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. A Licensed Insolvency Trustee will be able to go over in detail each option, and the pros and cons to each.

In the end, only a Licensed Insolvency Trustee like Bromwich+Smith has the legal authority to administer a Consumer Proposal for you. If you are researching  debt relief options and consulting with any orginization, 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 time and fees to the process. 

If you are facing overwhelming debt, remember that you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at1-855-884-9243, or request a call back at contact us page.

Related blog:

Is a Consumer Proposal Worth it in Canada: PROS & CONS