Consumer Proposals are considered the #1 alternative to bankruptcy. This is for a good reason. They are the only Government approved debt settlement program in Canada. The number of individuals choosing a Consumer Proposal as their preferred debt solution has risen significantly in the past number of years as more people learn about them.
We have compiled a list of advantages and disadvantages of Consumer Proposal in Canada:
Advantages of a Consumer Proposal:
For those who qualify, a Consumer Proposal has several key advantages over bankruptcy:
- You keep your assets – One of the main and biggest advantage of a proposal is that your assets are protected and you can keep all including tax refunds, investments and home equity.
- Lower monthly payments – In a Consumer Proposal, you repay only a portion of your debt depending on the terms and agreements made with your Trustee. It is not uncommon to see debts reduced as much as 70% of amount owed.
- No surplus income – Unlike in a bankruptcy, where the more you earn, the more you pay, Consumer Proposals have a fixed payment amount that does not increase.
- Creditor protection – Once a proposal is approved by your creditors, a Consumer Proposal will provide you with creditor protection that will stop collection calls and garnishments.
- It is a negotiated debt settlement
- Repay only a portion of your total debt
- One affordable payment is made monthly over no more than 5 years
- Interest is frozen
- Filing a proposal is legally binding for you and your creditors.
Disadvantages of a Consumer Proposal:
- Time – Although a Consumer Proposal is a top choice for many debtors, they are not always the best option. A proposal will usually take longer to complete than a bankruptcy. Lowering your monthly payment means longer time paying back, however, if your situation improves, you CAN pay off a proposal early.
- Credit rating is still affected – A Consumer Proposal DOES affect your credit. It will show as an R7 rating and stay there for 3 years after completion.
- Proposal terms – You must adhere to all proposal payments and agreements. You cannot miss payments or fall behind, or your proposal terms will be terminated.
- If you do not have a significant income, and do not own assets that would be seized, then a Consumer Proposal would not be of benefit. In this case, filing personal bankruptcy would possibly be your best option.
Only an LIT can act as a Consumer Proposal administrator. If you think a Consumer Proposal is the right solution for you, the next step is to talk with a Licensed Insolvency Trustee. Contact us today to find out if a Consumer Proposal is right for you.
If you want to compare monthly payments for a Consumer Proposal vs Bankruptcy or Debt Consolidation, try our debt calculator.