According to the Office of the Superintendent of Bankruptcy (OSB), 103,586 Canadians filed an insolvency proceeding in 2022; however, 75% were able to avoid bankruptcy. A consumer proposal is an attractive alternative to bankruptcy to resolve debt for many reasons. In this article, we explore why this might be a viable option to get you back on track.
What’s a consumer proposal?
A consumer proposal is an offer to your creditors to repay a portion of the debt you owe. Once accepted, consumer proposals can provide fixed and lower payments. This means that you could make a single, interest-free payment each month that’s based on what you can afford. A reduced monthly payment, spread out over a maximum of five years, allows you to keep your assets, stay consistent, and find financial freedom. Many see their debt reduced by up to 80%.
What makes consumer proposals an attractive option?
There are many benefits of filing a consumer proposal. Here are just a few:
- You’re in control of your assets. You don’t need to worry about losing your home, car, RRSP, or valuables, as your property is protected with certain exceptions. This means you can continue to make mortgage and vehicle payments during a consumer proposal.
- You will pay back less than you owe. You will repay a percentage of what you owe your creditors, resulting in a fixed, interest-free monthly payment.
- You can escape challenging debt. Depending on your unique situation, you can include debt from credit cards, lines of credits, payday loans, personal loans, income taxes, student loans, and more.
- You can silence debt collectors. Collection calls and wage garnishments from creditors will immediately stop upon filing a consumer proposal.
- Your credit score is less impacted. There’s less of an impact on your credit rating which will sit at an R7 instead of an R9 (bankruptcy). You can also continue to act as a director of an incorporated business.
- You can avoid bankruptcy. Consumer proposals are viewed more favourably, allowing you to avoid the social and emotional stigma of filing bankruptcy.
- You can become debt free. Once you’ve made all your monthly payments in your consumer proposal, you’ll receive a certificate that officially releases you from your debt.
How are creditors involved?
A consumer proposal is a creditor driven process in that your creditors will vote on whether to accept or reject your repayment offer. Acceptance of your offer will be legally binding and, upon completing the terms of your proposal, creditors agree to write off the remaining balance that you owe. For example, if creditors accept your offer to pay back 40% of your debt over 5 years, they’ll write-off the remaining 60% once you complete the requirements and terms of the proposal. The motivation for creditors to accept your offer is that they typically receive a higher return over what they would get if you went bankrupt.
A consumer proposal is a formal arrangement that can only be facilitated by a Licensed Insolvency Trustee (LIT). Your LIT will work on your behalf to make an offer to your creditors to either modify your payments or to repay only a percentage of what you owe. Learn more about what happens when you meet with a Licensed Insolvency Trustee.
There is no cost to meet with a LIT and discuss out what a consumer proposal would look like for you. We offer judgment-free, 30-minute consultations to help you find the best path to debt freedom. Book online or call us today at 1-844-4GT-DEBT to start your path to a brighter financial future.