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 a 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.