Whether you are going through a period of financial hardship, are burdened with credit card debt or have had a significant change in your income, there are many reasons why you may be behind on payments. A consumer proposal is one of the most common debt relief options chosen by Canadians struggling with debt.
This blog will examine 7 things you should know about a consumer proposal, including the pros and cons of a consumer proposal and how to file one.
What Is a Consumer Proposal?
A consumer proposal is a formal debt settlement arrangement regulated by the Canadian Bankruptcy and Insolvency Act (BIA). It is designed to help individuals who are struggling with unmanageable debt. Through a consumer proposal, you can formally offer your creditors to pay back a portion of your debt over a specific period. This legally binding agreement can provide you with relief from debt collectors, interest charges, and the threat of legal action.
7 Facts About Consumer Proposal
Legally Binding Contract
Unlike debt management plans (DMP) and debt settlement agreements, a consumer proposal is a legally binding contract between you and your creditors. When the Licensed Insolvency Trustee (LIT) sends the proposal to your creditors for approval, each creditor receives one vote per dollar owed. If a majority of 50%+1 of the total value approves the proposal, it will become binding for all unsecured creditors.
Eliminates up to 80% of Your Unsecured Debt
The primary objective of a consumer proposal is to provide debt relief by negotiating with your creditors to accept a reduced amount of what you owe. So, one of the most significant benefits of a consumer proposal is that you can eliminate up to 80% of your unsecured debt. This reduction can significantly alleviate your financial burden and allow you to use the money saved to pay down other debt.
No Upfront Fees
Unlike some debt relief options that require upfront payments or fees, consumer proposals don’t add any financial burden on you. The costs associated with administering the proposal are included in the repayment plan and are spread out throughout the agreement. This ensures that you can initiate the process without facing additional financial strain.
Stopping All Legal Proceedings
Filing a consumer proposal triggers an automatic stay of proceedings, which legally stops all legal actions and collection efforts initiated by your creditors. This includes lawsuits, wage garnishments, asset seizures, and harassing phone calls from collection agencies. The stay provides immediate relief from creditor pressure, allowing you to focus on financial rehabilitation without fearing imminent legal action.
Can Only Be Administered by a Licensed Insolvency Trustee (LIT)
Consumer proposals can only be administered by Licensed Insolvency Trustees (LITs), professionals licensed and regulated by the government of Canada to facilitate insolvency proceedings. LITs possess specialized knowledge and expertise in debt management and insolvency law, ensuring you receive accurate guidance and support. Working with a LIT provides assurance that the consumer proposal is executed in compliance with legal requirements and tailored to your unique financial situation.
Protects Your Assets
Unlike bankruptcy, which may require you to surrender certain non-exempt assets to repay creditors, a consumer proposal allows you to retain ownership of your assets. This includes homes, vehicles, savings, and personal belongings, provided you continue to meet the terms of the proposal. Protecting assets under a consumer proposal offers financial stability and security, enabling you to preserve your livelihood while addressing debt obligations.
(Usually) The Most Affordable Debt Relief Option
For many individuals facing financial hardship, a consumer proposal is often the most cost-effective option for debt relief. Reducing the total amount owed and offering flexible repayment terms provides a manageable path to financial recovery without the severe consequences of bankruptcy. Additionally, the absence of upfront fees and the protection of assets make consumer proposals an attractive alternative for those seeking sustainable debt solutions.
How to File a Consumer Proposal
With a consumer proposal, you book a consultation with a Licensed Insolvency Trustee (LIT), who will carefully review your financial situation to determine if a consumer proposal is the best solution for you. If this is the case, they will prepare the consumer proposal, outlining the amount of debt that will be repaid and the repayment details, such as monthly payment and for how many months the proposal will be.
The consumer proposal will be filed with the government and sent to your creditors for approval. From this moment on, all legal action, such as collection calls or wage garnishments against you, will cease. If your creditors agree, the proposal will come into effect immediately. You will make your monthly proposal payment to your LIT, who will then distribute it among your creditors. Once all payments have been made, the remaining debt will be discharged (written off).
Is a Consumer Proposal the Right Option for You?
A consumer proposal might be the right debt relief option for you. Speak to a Licensed Insolvency Trustee today to find out.
The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. They can help you prepare by examining all debt relief options and devise a strategy to resolve your debts. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well-informed and don’t rush into any solutions. All of our consultations are free, without time limits.
Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.
