Advantages and Disadvantages of Filing for a Consumer Proposal
Consumer Proposals contain certain advantages and disadvantages. These can include the following:
- It can reduce the amount of debt you need to repay your creditors by a considerable amount
- It can be a helpful debt consolidation method in the Northwest Territories if:
- You can’t afford to repay all of what you owe
- You have stable income
- You have enough money in your budget to make monthly payments
- It will pause active collection on student loan payments
- Can be a good option if:
- It is one of the last ways to avoid bankruptcy
- It’s not private. A proposal is a permanent public record included on a searchable database
- It’s more expensive than declaring bankruptcy
- It must be approved by the Court
- Creditors can reject the Consumer Proposal – if they do, you may have to offer them additional funds otherwise your proposal will not proceed
- If you miss more than 2 payments you may need to file for bankruptcy
- Student loans can’t be included if they are less than 7 years old
- Secured debts aren’t included
- Some assets (such as your home, vehicles, or investments) may need to be sold
- The permanent record of your insolvency can put certain professional licenses at risk and may also affect future employment opportunities
Beware of the Big Debt Rip-Off
Consumer Proposals have become the latest method for a growing number of for-profit companies and their sales people to take advantage of vulnerable, unsuspecting consumers. Don’t let this happen to you! Many debt relief companies are now claiming to offer Consumer Proposals as an easy way to get out of debt. There’s a problem. Only a licensed bankruptcy trustee is allowed to file paperwork for a Consumer Proposal. The debt relief companies charge thousands in fees only to refer you to a bankruptcy trustee who then charges his or her own fees.
How to Keep from Getting Ripped Off
Follow the three tips below plus start by speaking with a member of Credit Counselling Canada (an association of non-profit credit counselling agencies who do not work on commission). If a Consumer Proposal is truly one of your best options, one of their agencies can let you know and refer you to a reputable bankruptcy trustee for free.
Speak to a Non-Profit Credit Counsellor
Don't Pay Anyone But a Bankruptcy Trustee
Be Careful with Commission Based Debt Consultants
How a Consumer Proposal Can Impact Your Credit
Once you enter into a Consumer Proposal, a special notation is placed on your credit report in the public records section. Anyone who you allow to look at your credit report can see the public records section.
Additionally, it is possible that your creditors will report a “7” rating on any debt included in the proposal. This “7” rating means that creditors are receiving your payments through a third party. In this instance the third party would be your trustee. When you send a payment to your trustee, they distribute the agreed upon dollar amounts to all of your creditors once all applicable fees have been paid.
If you are making payments to secured creditors, like for a car loan, outside of your Consumer Proposal, those creditors will report on those debts separately. Creating and sticking to a realistic budget will make this easier.
If you are able to maintain a good payment history on a secured debt while you’re making your proposal payments, this can help you re-build credit afterwards.
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