A Consumer Proposal can only be arranged and administered by a bankruptcy trustee and costs about $1,500 to file. You pay an initial setup fee, and then, if it is accepted by your creditors, you will pay the remaining balance to proceed. In addition to this, the trustee will also retain 20% of your future payments as a fee for administering your Consumer Proposal. To be legally binding, the creditors who hold the majority of your debt must agree to the proposal. Once they do, you repay the agreed amount over a maximum of 5 years.
The Advantages & Disadvantages of Filing a Consumer Proposal in Canada
There are definitely advantages and disadvantages to filing a Consumer Proposal. Here are some that are important to be aware of:
It can significantly reduce the amount of debt you have to repay your creditors
It is one of the last methods of avoiding personal 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
It’s Okay to Ask for Help with Debt
“Life just happened. My debt got to the point where I started to feel like I was drowning. I didn’t feel like I could fix it on my own, and I wanted to start living my life as an adult without debt. I decided to reach out for help. Feeling relieved, I knew that everything was going to be okay – a lot of work – but okay. I had a plan to pay back my debt and continue doing the things I love to do like yoga and travelling.”
– Yasmine, Actual Client
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 Prevent 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
Speak with a non-profit Credit Counsellor about your financial situation first. They will be able to review your situation with you and help you explore and understand all your options to deal with your debt.
Only Pay a Trustee for Consumer Proposal Services
Never pay money to anyone for Consumer Proposal services except a licensed bankruptcy trustee. By law, they are the only ones allowed to provide these services and receive payment for their services.
Watch Out for Commission Based Debt Consultants
Ask how the person helping you is compensated. Many people who will seek to advise you on your debts work on commission. Make sure the “solution” they are suggesting is in your best interest – not theirs.
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How a Consumer Proposal Can Impact Your Credit
When you make payments on a Consumer Proposal, there is a note on your credit report in the public records section that you have filed a proposal. Anyone who has your consent to see your credit report will see the public records section as well.
In addition, your creditors may report a “7” rating on the debts included in the proposal. This means that they are receiving payments through a third party. The third party is your trustee. When you make a payment to your trustee, they disburse the agreed upon amount to each of your creditors after 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.
Contact Us for More Info About Filing for a Consumer Proposal in Ontario
Between financial difficulty and bankruptcy there can be many options. While a consumer proposal may be a good option for some, it isn’t the best option for everyone. To find out what options you have, call one of our professionally certified Credit Counsellors today. You can speak with a Counsellor in person or over the phone. Appointments with them are free, non-judgmental, and completely confidential.
For more information or to speak with a Counsellor, contact us in Ontario at 1-888-527-8999. You can also email or chat with us online right now.
Learn how Consumer Proposals and Bankruptcy are similar and how they are different. Also learn what you need to watch out for.
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