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If you’re considering a Consumer Proposal, one question likely weighs heavily on your mind: will you have to give up your home, car, or your retirement savings if you file? It’s a fair concern, and one that stops many Canadians from exploring this debt relief option. The good news is that a Consumer Proposal is designed to help you keep your assets while delivering relief from overwhelming debt. Here’s everything you need to know to make an informed decision about whether it’s right for you.
What is a Consumer Proposal?
A Consumer Proposal is a formal debt relief solution that can only be administered by a Licensed Insolvency Trustee (LIT). In a Proposal, you’ll work with your LIT to develop an offer to pay your creditors a percentage of what you owe, extend the time you have to pay, or both. How much you offer to repay is largely based on your income and assets.
To estimate your payments, you can use our Consumer Proposal calculator or contact us for a free consultation to review your situation.
How does a Consumer Proposal work?
Once you have an offer, your LIT will file it with the Superintendent of Bankruptcy (OSB). At this point, all creditor actions will stop, including collections calls, wage garnishment, and any lawsuits against you.
Your LIT will present your proposal to your creditors, who decide whether they’ll accept or refuse your offer. If they accept, you have up to five years to repay your debt. During this time, you have to make regular payments to your LIT and attend two financial counselling sessions.
After you complete all the requirements of your Proposal, you’re released from the unsecured debts that were included. Now you can focus on rebuilding your credit and reaching your financial goals.
If your proposal is rejected, you can make changes to your offer and resubmit or consider other debt relief options, such as personal Bankruptcy.
What Assets Can You Keep in a Consumer Proposal?
In a Consumer Proposal, you can keep all of your assets. That’s right, your house, car, furniture, RRSPs, home equity, everything. But, when it comes to secured debts, like your mortgage or car loan, you do need to keep making your payments on time. A secured debt is tied to collateral, so if you stop making your mortgage or car loan payments, the lender can take back your house or car to reclaim what you owe.
Who can file a Consumer Proposal?
You can qualify for a Consumer Proposal in Canada if:
- You’re an individual (not a corporation)
- You’re insolvent (you can’t afford to pay your bills on time)
- Your total debt doesn’t exceed $250,000 (not including your mortgage)
- You’re a Canadian resident or own property in Canada
What Debts are Included in a Consumer Proposal?
A Consumer Proposal includes most unsecured debts, which are debts that aren’t backed up by an asset, such as:
- Credit card debt
- Personal loans
- Payday loans
- Income tax debt
- Student loans (if you’ve been out of school for more than seven years)
Consumer Proposal vs. Bankruptcy: What’s the Difference?
One of the main differences between Consumer Proposals and Bankruptcy is that you may have to sell some assets in Bankruptcy, depending on what you owe and where you live. While there’s more of a risk of losing your assets, every province has exemption laws that protect certain items. For example, you may be able to keep some of your investments, your home (depending on the amount of equity you have), and your vehicle (up to a certain value).
In a Consumer Proposal, you don’t have to worry about losing those assets.
Pros and Cons of a Consumer Proposal
As with any financial decision, you should weigh the potential benefits and disadvantages of a Consumer Proposal.
Benefits of a Consumer Proposal
- Keep your assets (house, car, RRSPs, etc.)
- Reduce the debt you have to repay
- Consolidate your debt into one easy payment
- Extend the time you have to pay
- Stop creditor actions (collections calls, wage garnishment, creditor lawsuits)
- Avoid Bankruptcy
Disadvantages of a Consumer Proposal
- Damage to your credit score
- Difficult to obtain credit after a Proposal
- Requires you to have a steady income to make your proposal payments
- Creditors can reject your proposal
- Only includes unsecured debts
Who Should File a Consumer Proposal?
If you have a steady income, don’t want to lose your assets, and want to avoid Bankruptcy, a Consumer Proposal might be the right fit. If you have questions or concerns related to a Consumer Proposal or other debt solutions, contact one of our experienced Licensed Insolvency Trustees. LITs can offer the widest range of debt relief solutions, including Consumer Proposals and Bankruptcy. We’ll review your personal financial situation and help you find the best option.
You don’t have to deal with your debt alone; we can help. Give us a call today for a free, no-obligation consultation at 1-888-371-8900, or complete our online contact form.
