In our time, filing a consumer proposal is an increasingly used option in relation to personal bankruptcy or voluntary deposit to get out of an excessive debt situation.
A consumer proposal could be defined as a solution to over-indebtedness that allows you to escape the consequences of bankruptcy by negotiating, with your creditors , a legal agreement to settle a certain percentage of each of your debts.
The consumer proposal is for you, if it is not possible for you to pay all of your debts, but your income is high enough to be able to make your future payments.
- Your credit card debts ($ 40,000) and taxes ($ 10,000) total $ 50,000
- You currently have a secure job and a stable salary.
- You have the financial capacity to repay part of the required payments, but you can not pay the full amount.
You contact a trustee in bankruptcy. The latter will assist you and help you file a consumer proposal in which you offer your creditors monthly payments of, say, $ 200 over the next 5 years; which corresponds to an approximate total of $ 12,000 ($ 200 / month x 60 months).
Note that the maximum time limit to repay all of your debts included in the consumer proposal must not be more than 5 years (60 months) from the date of filing of the latter.
It goes without saying that, in order for your creditors to want to endorse your consumer proposal, they will have to be able to collect a higher percentage than they would have received if you had to declare bankruptcy . Your trustee in bankruptcy will assist you when evaluating the amount you can offer to your creditors.
In our scenario , you propose to your creditors to repay 25% of your debts. If you declare bankruptcy, they can hardly receive anything.
It is your trustee in bankruptcy who bears the burden of proving to your creditors that it is more profitable for them to agree to your consumer proposal than to suffer your bankruptcy.
It is important that you pay all your payments before the deadline. As soon as 3 payments (whether consecutive or not) are late or not paid, the consumer proposal may be revoked; which means that your creditors will now have the right to ask you to return their money, on their terms.
At the end of the procedures, when all of your payments are completed, all of your erasable debts will be eliminated.
You will know that you have made the right decision and chose the method of repayment of your debts with the most benefits.
Benefits / consequences of a consumer proposal
The fundamental purpose of a consumer proposal is to allow you to preserve your assets and settle your debts taking into consideration your financial situation, personal (number of dependents …) and your budget capacity.
|Benefits of the consumer proposal||implications|
|Reduction of the amount of the debt||Your debts are diminished and controlled;
When bankrupt, they are rather abolished
|Reduced monthly payments||It is not possible for some creditors to accept a consumer proposal, regardless of your situation|
|Fixed monthly payments to the trustee in bankruptcy.
During a bankruptcy, the amount of your monthly payments will be proportionate to any increase in income (salary …)
|Your consumer proposal will remain on your credit file for 3 years.
During a bankruptcy 1st, the entry will remain rather for 6 to 7 years.
At a 2nd bankruptcy, it will remain on 14 years
|Elimination of interest||If you fail, a second chance of proposal will not be possible. Be well prepared.
In a bankruptcy, you are entitled to a second filing.
|Maximum repayment period: 5 years||Your creditors may charge you a fee of ± $ 2,000 to join a consumer proposal program|
|Cessation of telephone harassment of creditors & mailing of bills by mail|
|You avoid seizure of your property, salary or bank account|
|Creditors suffer less financial loss than in a bankruptcy. They are therefore more inclined to accept your consumer proposal|
|You keep your belongings.
In a bankruptcy, you must agree to dispose of most of your assets.
|Your credit rating is less severely affected than in a bankruptcy|
The credit score VS the consumer proposal
When you have excess debt and you have to file a consumer proposal, your credit rating goes down to R1, which is its lowest level, throughout your debt repayment period.
Then, when the process is completed, your credit rating goes back to R7 (R9 being the maximum) for 3 years.
A credit rating of R7 is usually sufficient for a loan application (mortgage or other) to be accepted at the end of your consumer proposal.
Other positive effects of a consumer proposal
Under the pretext that you have filed a consumer proposal (or are insolvent):
No contract can be changed (or terminate)
- No creditor guaranteed by a house or car has the right to terminate a financing contract and recover the property
- No employer can dismiss you
Considering the many benefits of a consumer proposal, you are tempted to move forward without delay. However, be sure to carefully evaluate all debt repayment options available on the market. A financial advisor can help you make the right decisions. In addition, it will protect your interests.