Your payments are overdue, resulting in high interest fees and charges. Debt collectors are calling every day, often multiple times a day. If this sounds scary and familiar, you are not alone. With the high cost of living, managing debt payments can be extremely difficult. Too much debt can leave you short of the money you need every month, causing you to borrow more, and perhaps skip payments due to your creditors. In a situation like this, it’s important to remember that several debt relief options are available to help. If you have overwhelming debt, a Consumer Proposal benefits you by allowing you to avoid Bankruptcy and keep your assets, providing you with relief and reassurance.
If you’re having trouble keeping your credit payments up to date, it’s wise to explore ways to reduce your debts. Some choices are:
- Developing a monthly budget that includes making all your minimum payments to creditors plus any extra you can find to make additional payments.
- Taking out a debt consolidation loan depending on the interest rate and terms of the loan.
- Seeking credit counselling which will also help you develop a budget and show you how to follow the budget and reduce debt.
These strategies can help you improve your financial situation and regain control.
However, if your debt problems seem overwhelming, there are other debt-relief options. How do you know if you need professional help with your debt?
Some signs are:
- Your payments are overdue and paying your creditors feels like a juggling act, with the most urgent being paid and the other ignored
- You would not be able to manage if your interest rate rose
- Your bank accounts are in overdraft
- You are borrowing from high interest lenders every month because there isn’t enough money to meet your obligations.
- All of your available credit is maxed out.
- Banks refuse to give you a consolidation loan.
Consumer Proposal vs. Bankruptcy
There are two ways to reduce or eliminate your debt in this situation. The first is a Consumer Proposal, and the other is filing an assignment in Bankruptcy. You’ll need a Licensed Insolvency Trustee for both.
A Licensed Insolvency Trustee is a professional licensed by the federal government to offer legally binding, government-approved debt solutions. They oversee the Consumer Proposal or Bankruptcy process, protect your rights and those of your creditors, and distribute your payments to creditors. The Office of the Superintendent of Bankruptcy (OSB) oversees the work of a LIT to ensure compliance with the Bankruptcy & Insolvency Act. The first consultation with a LIT is free and allows them to assess your situation and recommend solutions.
Consumer Proposal benefits
A Consumer Proposal is an offer your LIT will prepare with you and present to your creditors. It can significantly reduce your debt. Creditors often accept the proposal because it should ensure they get a higher payout on what you owe vs filing a bankruptcy. Consumer Proposals stop the interest, all legal action and collection activity, and your creditors can no longer contact you for payment.
You repay the debt with one monthly payment that you make to the LIT, who distributes the money to your creditors. Your fees for the Consumer Proposal are part of the monthly payment, so you don’t pay any extra out of pocket.
You have up to 60 months to complete your Consumer Proposal. Once it’s done, you’ll be debt-free!
Bankruptcy benefits
To file for Bankruptcy, you must be insolvent, which means you are unable to pay your debts when they are due, have stopped paying your debts, or your assets are worth less than what you owe. Like a Consumer proposal, filing for Bankruptcy in Canada will stop the interest, all legal action and collection activity, and your creditors can no longer contact you for payment.
Filing for Bankruptcy will eliminate your unsecured debts in as little as nine months. Once you complete the Bankruptcy, you’ll be issued a discharge and be debt-free.
Both options have their pro’s and con’s but in many cases the Consumer Proposal benefits often outweigh the benefits of Bankruptcy
| Advantages | Consumer Proposal | Bankruptcy |
| Requires the services of a LIT | Yes | Yes |
| Minimum amount of debt to file | $1,000 | $1,000 |
| Maximum amount of debt included | $250,000 | No Maximum |
| Type of debt | Most unsecured debt | Most unsecured debt |
| Legally binding | Yes | Yes |
| Stops all collection activities by creditors | Yes | Yes |
| Stops interest and fees from accumulating | Yes | Yes |
| Length of time | Up to 60 months | Depending on your income: 1st bankruptcy = 9 months or 21 months; 2nd bankruptcy = 24 or 36 months, subsequent bankruptcies = court hearing |
| Payment | The monthly payment stays the same until you pay off the Consumer Proposal. | You could owe the trustee more if your income increases. |
| Attend counselling sessions to help with money management & credit rebuilding | Yes | Yes |
| Requires monthly reporting of income and expenses | No | Yes |
| Keep your tax refunds (GST, etc) | Yes | No |
| Keep your assets | Yes | You can keep some assets. Each province or territory allows for asset exemptions. Your LIT will discuss how to deal with assets at your initial free consultation. |
| Affects credit score | Yes, it stays on your credit report for three years after completion or six years from filing, whichever comes first. | Yes- 1st bankruptcy: stays on your credit report for 6 or 7 years after discharge (depending on province); Any subsequent bankruptcy: stays on your credit report for 14 years.. |
Is a Consumer Proposal Better Than Bankruptcy?
These debt relief options have similarities, but they’re not the same. It often will depend on your individual situation, which is why you should speak to a Licensed Insolvency Trustee to find out which is the better option for you.
A Consumer Proposal benefits you by:
- Allowing you to keep your assets.
- Allowing you to keep tax refunds, GST, etc.
- Offering a manageable payment which is often lower than required in a bankruptcy.
- Less “homework” to do because you don’t have to make monthly income & expense reports to your LIT.
- Giving you the satisfaction of repaying some of your debt.
- Is removed from your credit report quicker than a bankruptcy especially if you have had a previous bankruptcy
The benefits of filing for Bankruptcy are:
- Costs less than a Consumer Proposal
- You keep some of your assets.
- You can complete the process in as little as nine months.
- You have the opportunity for a fresh start.
What should I do?
If you are struggling with debt payments you can’t manage, seeking professional help is crucial. Without intervention, severe debt problems can lead to legal actions and increased stress. A Licensed Insolvency Trustee (LIT) will review your situation and provide the best debt solution based on your circumstances, helping you avoid these negative impacts.
You may simply need some financial education to help you get back on your feet. If your debt problems seem overwhelming, a Consumer Proposal or Bankruptcy could also be in your best interest.
Where to get help
Having more debt than you can repay is stressful and negatively affects your life in many ways. At Allan Marshall and Associates, we’ve been helping people solve their debt problems for over forty years. Contact us for a free consultation online or by calling 1-888-371-8900. We offer credit counselling, Consumer Proposals, and Bankruptcy options. We’ll help you get back on your feet and leave your debt problems in the past. Don’t wait; take the first step toward financial freedom today.
