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Consumer Proposal

Consumer Proposal

One of the main factors that is holding us back into being able to save up and invest in our future is our debt, especially our credit card debts. Reaching a point where you can’t even afford to pay the minimum required payment can be very stressful. A lot of us have heard of bankruptcy, but most of us are unaware of a program called Consumer Proposal.

The discussion here will include: What is a Consumer Proposal? What is the consumer proposal process? Does consumer proposal work? What are the advantages of a consumer proposal?

What is a Consumer Proposal?

Consumer proposal – in a simplified definition, is your proposal to your creditors regarding the repayment of your debts. You will need a Licensed Insolvency Trustee to go between you and the creditors. The trustee will help you develop a “proposal” to pay your creditors a certain percentage of amount owing at a fixed monthly payment for a specific period.

In order to qualify for a consumer proposal, you must be:

  • at least 18 years of age
  • not owe more than $250,000 (not including mortgage on the main residence)
  • unable to pay your unsecured debt in a reasonable length of time

The Consumer Proposal Process

Your first step will be to meet with a licensed insolvency trustee for financial advice and discuss your financial circumstance. The trustee will evaluate your financial situation in order to give you options regarding debt management. If your financial circumstance is qualified to take the route of a consumer proposal, your trustee will give you all the information you need in order to start.

Part of this process is for you, the applicant, to attend a couple of credit counseling sessions. This will help you better understand the process, the effect, and the options available to you while in the consumer proposal program.

Here is a simplified version of the entire process:

  • meet with a licensed insolvency trustee
  • the trustee will look into your financial circumstance and if a consumer proposal is beneficial, then you can go ahead with the process
  • you sign the contract and pay the trustee their fees to facilitate the entire process
  • collect all the documents for your application:
    • all of your loan statements (credit card, lines of credit, etc.),
    • payslips
    • employment certificate
    • bank statements
    • and any other documents your trustee will deem necessary for your successful application
  • the trustee will file your proposal to the Office of the Superintendent of Bankruptcy and submit your proposal to your creditors
  • once the proposal is filed, you stop making payments to your creditors
  • creditors have 45 days to either accept or reject your proposal
  • you make your fixed monthly payment
  • once you have fulfilled the terms of your proposal, you will be given a certificate of full performance

Does Consumer Proposal Work?

A consumer proposal will help you get your finances to straighten out. Once the proposal is accepted, you will start your fixed monthly payment for up to five years. Here is an example of an approved consumer proposal:

Mr. A has a total debt of $50,000 in all his credit cards and is paying an average interest rate of 19.99%. He is being charged over $800 a month on interest alone and he could no longer afford to pay the interest and make the minimum payment. He met with a licensed trustee to discuss consumer proposals.

A proposal to pay 50% of his total debt in five years is submitted by the trustee and all the creditors accepted the offer. The client now pays $420 monthly for five years. After five years, all his debts are paid off.

Mr. A can also choose to make a higher monthly payment to fulfill his obligations in a shorter time. The faster his debts are paid, the sooner his credit score can recover.

Advantages and disadvantages of a consumer proposal

As with all extreme debt management programs, there are advantages and disadvantages to a consumer proposal. Would the advantages outweigh the disadvantages to help you get out of debt sooner?

Having a fixed monthly payment with no interest can give you peace of mind. You need only to focus on the reduced monthly payment and use the extra money for your day to day living.

A consumer proposal is a little similar to bankruptcy in a way that it will adversely affect your credit score, thus affecting your ability to obtain a credit card. You need to make sure that your payment is on time. If you miss 3 months of payment, your contract becomes void and your debt goes back to its original balance plus interest.

My Advice.

The information I have given you is based on my experience as a financial adviser. Each situation is unique and needs in-depth analysis. Talk to a licensed financial advisor or trustee to properly guide you if a consumer proposal is a right path for you.

Source: The  Government of Canada website

6 Comments

Philip Posted on6:12 am - December 11, 2019

Hi Leslie,

Your article is deeply interesting as I, or shall I say, we as a generation have gone through the absolute worst financial betrayal in the history of mankind.

The trademark of people in our times, as adults, is ‘debt’. All about debt. There are doctors, lawyers, nurses etc that are barely able to get by and more and more people are becoming homeless.

In Ireland homelessness has gone up by 145%! We are only beaten by Germany whose homelessness has gone up by 150% and so I see your advice is very much needed and appreciated.

I have myself in the past, many years ago now thankfully, had to go through this Consumer Proposal. I just did not know what that meant until now and so thank you for your incredible and insightful research here Leslie.

Given the lack of jobs and the AI Industry being the future of the workforce, quite potentially, what is your long term suggestion to avoid any future economic collapse given that the West advised China circa 03 not to print more money when they had a low in the economy, but the West did just that thus devaluing our currencies and to make things worse after the crash of 08?

China recovered inside of two years by the way by not printing more cash, incidentally.

Regards,

Philip.

    Leslie Posted on11:44 pm - December 11, 2019

    Thank you for your insight. I know that global events can affect our financial well-being. As you have mentioned the financial crisis of 08, I know a lot who lost their retirement when the market crashed big time. That is why I always believe that people should have an open line with their financial advisors. Information is always the key. I have my investment in mutual funds as well but I have enough time to absorb and correct the risks involved if another crash will happen. If I am close to retirement, I would transfer my investment to a vehicle that offers lesser risk.

Carla Posted on11:06 pm - December 17, 2019

This is great info! Due a bad economy where I live and my husband being off work for 6 months due to an injury, we’ve been in a financial bind for the last couple of years and have had to resort to using credit. It’s not fun having those large balances hanging over your head. Would you say a consumer proposal is better than bankruptcy for the effect on credit score?

    Leslie Posted on2:22 am - December 18, 2019

    Hi Carla. both will have a negative impact on your credit score. But sometimes, we reach a point due to circumstances we can’t do anything about, that we are being forced to choose between bankruptcy or loan forgiveness. Consumer proposal is a bit better in the sense that you still get to keep your property, you will just propose a repayment plan of a certain percentage of your total owing for a fixed monthly payment and a fixed term. Once you have fulfilled all your obligations, you can start repairing your credit. The record that you availed of the consumer proposal will be in your record for three years, whereby it will be 6 years before it can be taken out of your record for bankruptcy. I would still suggest for you to talk to a financial advisor. They can give you a better advise with a clearer picture of your circumstance. I hope for the best for you.

James Barnett Posted on10:42 pm - January 26, 2020

Hi Leslie, I’ve gone through the consumer proposal process. I preferred to pay back whatever I could of my debts instead of declaring bankruptcy and paying nothing back. I paid off my consumer proposal in 3 years. I can admit, even all these years later, that it was definitely the right thing to do. Thank you for sharing about consumer proposals so that more people can be aware of this excellent option that is available for them.

    Leslie Posted on1:20 am - January 27, 2020

    You are welcome, James. Consumer Proposal is a great project supported by the government to allow us to get back on our feet. I am happy to hear that you paid off your consumer proposal three years ago. Best of luck to you.

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