A consumer proposal has distinct advantages for those who have personal debt but can’t seem to be making headway into paying it down in a reasonable fashion. A consumer proposal is a powerful debt elimination tool overseen by the Canadian federal government. It allows Canadian consumer debtors an option to avoid bankruptcy by instead by entering an agreement to only pay back a small percentage of what is owed and stopping all the interest charges.
As a licensed insolvency trustee (“LIT”) at C.E. Craig & Associates Inc, with offices in Victoria, Nanaimo, Langford, and Surrey, I often come across individuals seeking advice on managing their debts and finding ways to regain financial stability. One question that frequently arises is “is a consumer proposal worth it”?. In this blog post, we will address several common questions and concerns related to consumer proposals, helping you make an informed decision about whether this debt resolution strategy is worth considering.
Do You Lose Your Assets in a Consumer Proposal?
One of the significant advantages of a consumer proposal is that it allows you to retain your assets while still benefiting from debt relief. A consumer proposal enables you to keep your possessions, such as your home, vehicle, and personal belongings. – as long as you can continue to pay for them. This aspect makes it an attractive option for individuals who wish to protect equity in their assets while dealing with their debt. A consumer proposal will take into consideration how much equity a debtor has in their personal assets and will factor this amount into repayment options.
Can I Keep My Credit Card During a Consumer Proposal?
This is one clear advantage in filing a consumer proposal vs. personal bankruptcy. During a consumer proposal, you will not required to surrender your credit cards. This is different than a bankruptcy when you are required to surrender all credit cards to the trustee even if they have no balance on them. And during a bankruptcy, you must disclose the fact that you are bankrupt before you can obtain any additional sources of credit.
In a proposal, you can apply for additional credit after the proposal is signed and can keep your credit cards (based on the approval of the credit card issuer.) It is important to remember that a consumer proposal is meant to help you regain financial stability, so obtaining additional sources of credit may not be the best option when entering into a debt repayment plan.
Can Creditors Reject a Consumer Proposal?
While it is true that a majority of your creditors who vote have to accept the proposal to make it binding on all creditors, a rejection by creditors outright is very uncommon. Sometimes creditors respond to the initial proposal offer by asking for a bit more money to be paid over a longer period. The decision to accept this counteroffer (or reject it) is always in the hands of the debtor. This is why working with an experienced LIT is beneficial for debtors. When formulating consumer proposal, our years of experience in negotiating with creditors will help to advise you of the best offer to creditors with the highest likelihood of acceptance. As your proposal LIT we will ensure that your proposal is reasonable and fair, increasing the likelihood of acceptance. In most cases, creditors prefer a consumer proposal to bankruptcy, as it allows them to recover a greater portion of the debt owed.
Can I Keep My Car if I Do a Consumer Proposal?
Yes, you can typically keep your car when you enter a consumer proposal. Like other assets, a consumer proposal allows you to retain ownership of your vehicle as long as you continue making the required loan or lease payments. (if you have any debt against your vehicle). If you have equity in your car, you will need to account for this equity in your proposal by proposing an increased payment or making a lump sum payment to the creditors. This is also something the LIT will help you calculate.
Why Not to Do a Consumer Proposal?
While consumer proposals can be an effective debt resolution strategy for many, it’s essential to consider the potential downsides as well.
Some reasons why a consumer proposal may not be the best option for everyone include:
a) Ability to Pay:
If you have a steady income and are capable of repaying your debts in full in a reasonable period of time, it may be more beneficial to explore alternative options, such as a debt consolidation loan. However, given the recent higher interest rates, this is becoming less feasible for many consumers.
b) Impact on Credit:
A consumer proposal will have an impact on your credit rating, as it will be noted in your credit report until 3 years after the proposal is completed. However, it’s important to remember that if you’re already struggling with debt, your credit score may already be affected. Additionally, you may struggle for many years just paying the interest and never really paying down your debt. While struggling under insurmountable debt, you may “have a perfect credit score”, but in reality, you are just treading water (or going backwards). A consumer proposal offers a permanent solution to eliminate all of your debt in 5 years or less, after which you can begin to rebuild your credit.
c) Professional Considerations:
In certain professions, such as law or finance, filing a consumer proposal may have implications on your career. However, most professions prefer their members file a consumer proposal vs. a personal bankruptcy. If this is a concern for your, contact us and we can talk to you about your specific organization and your concerns.
Conclusion:
A consumer proposal can provide significant debt relief while allowing you to retain your assets and work towards regaining financial stability. However, it’s crucial to carefully assess your individual circumstances and consult with a licensed insolvency trustee to determine if it’s the right solution for you. And remember, only a licensed insolvency trustee can help you file a consumer proposal. Don’t pay a fee to anyone who is not licensed – the debt advisory market is flooded with people who will charge huge fees for the services LIT provide for FREE.
Overall, there is very little downside to filing a consumer proposal while the personal benefits can be extensive. A consumer proposal can take years off debt repayment obligations. By seeking professional guidance and understanding the potential benefits, you can make an informed decision regarding your debt management strategy. Remember, there is no one-size-fits-all solution, and what works for one person may not be suitable for another.
