Filing a Consumer Proposal for Debt Consolidation

Filing a Consumer Proposal for Debt Consolidation

Filing a Consumer Proposal is a legal process for those in debt and who are so deep in debt that they don’t qualify for DMP (debt management program) or a debt consolidation loan. A Consumer Proposal can only be administered by a Bankruptcy Trustee.

When the Bankruptcy Trustee files a Consumer Proposal, he will be sending a “proposal” (hence the name) to your creditors, asking them that they accept less payment than what you owe them. For the Consumer Proposal to go through, creditors who hold at least half of the debt must agree to the proposal, otherwise, you would have to search for another debt settlement option, including filing for bankruptcy.

Filing a consumer proposal is often the last option before filing a bankruptcy. You should take the program seriously because:

  • You still have to pay your debts in bankruptcy based on your income. You may also have to pay an administrative charge.
  • Bankruptcy filing gives you an R9 record on your credit rating. The record will remain in place for 6 years after the discharge of a first-time bankruptcy. However, if you were unable to get a debt consolidation loan, chances are that your credit rating is already bad.
  • You will lose non-exempt assets such as RESPs and contributions made to your RRSP within the past 1 year. You will also lose home equity in excess of $10,000, tax refund for the year you filed the bankruptcy, and previous year’s refunds that may still be outstanding, and your HST cheque.
  • There are duties you have to perform when in bankruptcy, including making payments, reporting your income, and attending credit counselling. Failure to fulfill these duties means you will not be discharged.

If the majority of your creditors accept the proposal, then you will have 5 years within which to repay the agreed amount. If you are unable to consistently make monthly repayments on the program, the proposal collapses and you will not be able to file another one.

Applicable Interest Rate

For Consumer Proposal, you do not pay any interest

Advantages
  • You will not pay any interest
  • Most wage garnishments end immediately
  • Creditors and collection agencies can no longer contact you to pay them
  • You will not have to deal with your creditors (the Bankruptcy Trustee will do this), giving you convenience and peace of mind.
  • You will repay considerably less than you owe
  • The negative effect on your credit rating is not as severe as in bankruptcy. While consumer proposals lead to an R7 rating, bankruptcy leads to an R9 rating, which is the lowest possible rating.
  • You will avoid bankruptcy, meaning you will not be at risk of losing equity in your home and other assets.
  • Unlike bankruptcy, your payments will not increase with the increase in your income.
Disadvantages
  • You will be at your creditor’s mercy. If at least half of them don’t accept the proposal, you will have to file for bankruptcy or find another way to pay off the money.
  • This is a legal process under the Bankruptcy & Insolvency Act (BIA), meaning once it kicks off, there is no going back
  • This will be reported on your credit report. Your credit rating will be negatively impacted for the duration of the program and 3 years after. Since a typical Consumer Proposal program takes between 4 and 5 years, this means you will have a bad credit rating for between 7 and 8 years.
  • You will pay initial and ongoing fees over and above your monthly payments.
  • There is a high recidivism rate (over 20%). This means 1 in 5 people will need to repeat the program in the future. This is usually because people who need the program are already in a bad financial situation.
  • Other than the legally mandated 2 credit counselling sessions in the first 6 months of the program, there is no other way for you to learn much-needed budgeting and money management skills (which contributes to the high recidivism rate).

We will give you:

Helpful Advice

Solid Financial solutions

Credit Repair Options

Qualifications to file a Consumer Proposal

Qualificatiomn to apply
  • Your debt must be over $5,000, but not over $250,000 (not inclusive of your home mortgage).
  • You must have a good job (you must afford to make monthly repayments to your creditors)
  • Your current situation must be that you cannot afford to repay all your creditors in full plus interest
  • You must not be able to afford a debt consolidation loan because of high debt
  • You don’t want to file for bankruptcy because your income means you will be subjected to surplus income payments and you don’t want to lose your car, home, and other assets.
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