Consumer proposals are the number one way to help people get out of debt more easily. They allow you to continue living without the hardship that might be caused by other types of debt proposals. This is because a consumer proposal could reduce your debt repayments. Unlike bankruptcy, you’ll get to keep your assets, too. You won’t have to cut back on doing all the things that matter to you. When the consumer proposal has been satisfied, your debts will be eliminated.
In this article, we explain what debts a consumer proposal can help you pay off. You will also find out just how much you could save versus other debt proposals.
You’re not alone
For most people, debt is a way of life. You may have borrowed a little money here and there to get your kids the things they needed. Providing for your kids has always been your number one concern. While the paychecks or other income were flowing, your debt was manageable. But the income stopped flowing. That wasn’t your fault. Perhaps separation has caused a financial crisis, or your work hours were cut.
Whatever the reason for your debt, you are struggling to make repayments now your income isn’t what it used to be. You may have started receiving demands from collection agencies. You are not alone. Many people are in the same position.
A consumer proposal could be the solution to your problem.
Why do people use consumer proposals?
Consumer proposals provide a lot of advantages over other forms of debt relief, as they:
- Could reduce your debts by as much as 70%
- Consolidate your debts into one easy-to-manage payment
- Let you keep your assets (like your car and equity in your home)
- Stop interest on your debts growing
- Protect you from legal action and debt collection
How do consumer proposals work?
Consumer proposals protect you and your creditors. They let you negotiate an affordable repayment amount that is as little as possible. Your creditors will want the repayment amount to be more than they would get if you were to go bankrupt.
Once the negotiation is complete and the consumer proposal agreed, you make a single payment each month while the consumer proposal is running.
Providing you keep up with these repayments, your debts will be eliminated at the end of the term.
What debts can be wrapped into a consumer proposal?
You can include only unsecured debts in a consumer proposal. However, these are the debts that cause the most problems, because they tend to charge the highest interest rates. Types of unsecured debts include:
- Credit cards
- Store cards
- Bank loans (including overdrafts)
- Payday loans
You may also be able to include certain student loans and tax debts. Consumer proposals are the only type of debt proposals that the Canada Revenue Agency will accept.
What debts cannot be wrapped into a consumer proposal?
Secured loans, like a mortgage or vehicle loan, cannot be included in a consumer proposal. Other debts that you will need to carry on paying include child support or alimony payments and a home equity line of credit.
How much will you be expected to pay?
The exact amount you will pay depends on three factors:
- What your creditors might receive if you declared bankruptcy
- What creditors think is a suitable minimum amount
- What you can afford to repay each month
The amount agreed becomes the amount you owe. No interest is added to your debt. The repayments could be spread over up to five years.
As an example of what you might pay compared to other debt proposals, let’s consider that you owe, say, $50,000 in unsecured debts. Over five years, your monthly debt repayments may work out as follows:
Of course, this is for illustration purposes only. What you pay will depend upon your unique personal circumstances.
Who negotiates a consumer proposal, and how does it work?
The negotiating process must be undertaken by a Licensed Insolvency Trustee (LIT). The LIT has experience with many creditors and debtors, so will have a good idea of the offer that is likely to be accepted. They will discuss this with you and agree on an offer that you are happy to make.
The LIT approaches your creditors and proposes an offer that may be accepted, countered or rejected. Very few offers are rejected, but some are countered. If an offer is countered, then the LIT will continue the negotiation on your behalf (and with your input) until an amount is agreed.
Each of your creditors owns a share of your debt, based upon the amount of money you owe them. Each dollar of debt is equal to one vote. If more than 50% of the votes are in favour of accepting the offer, then it becomes legally binding on all your creditors named in the consumer proposal.
Should you file a consumer proposal?
As this article explains, there are many advantages from which you could benefit if you agree to a consumer proposal. To recap:
- All your unsecured debts are wrapped into an easily managed single monthly payment
- You won’t lose your assets, as you might if you declare bankruptcy
- Interest will stop accumulating
- You’ll pay back less than you currently owe – usually a lot less
You are honest and want to repay your debts. But life has dealt you a financial blow that was out of your control. A consumer proposal could be the way to see the light at the end of the tunnel and help you get back on your feet again.
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Where do you begin?
You don’t have to walk a financial tightrope every day. Your first step to becoming debt-free is to talk with a Licensed Insolvency Trustee.
Here at Allan Marshall & Associates, we have helped many people just like you to file consumer proposals and get their financial life back on track.
Our consultation is free and confidential. We’ll discuss your unique situation, and make sure that you can afford the monthly payment within your budget. We’ll assess that your creditors will get more than if you were to declare bankruptcy and that your offer should be enough to ensure acceptance. We’ll do all the legwork for you, keeping you in touch along the way.
If you are having trouble making monthly repayments, or are simply overwhelmed by your debt issues, call us on 1 (888)371 8900, or get in touch via our online contact form.