Consumer Proposals are a powerful debt solution, a popular substitute to traditional consolidation loans, and Canada’s number one alternative to personal bankruptcy. Working with a Licensed Insolvency Trustee you will develop an offer to pay your creditors a percentage of the debt you owe, stop all future interest charges, and gain protection from creditors.
Although Consumer Proposals have been enshrined in law for more than 20 years and a majority of individuals who work with Licensed Insolvency Trustees choose to file proposals rather than bankruptcy, the fact remains that Consumer Proposals are still lesser known compared to debt management strategies such as credit counselling programs and consolidation loans.
If you’re considering solutions to get out of debt, wondering about some of best ways to pay off debt or just starting to research your legal debt options, read on to learn the top 10 facts you should know about Consumer Proposals.
Advantages of Consumer Proposals
Many people are surprised to learn about some of the distinct advantages Consumer Proposals have over other debt management options. What’s more, these key benefits outlined below are built into the process without needing to be negotiated with creditors:
- Automatically Stops Interest Charges
Ongoing interest being charged on your debts can make it difficult to pay off even a modest balance, with higher interest debts like credit cards seeming nearly impossible to pay down if only minimum payments are made. When you make a Consumer Proposal to your creditors this triggers a legal status known as a “stay of proceedings” which will freeze your debts – this means that ongoing interest your creditors have been charging is stopped automatically, without negotiation.
Removing interest charges from debt payments makes Consumer Proposals one of the most affordable options to pay off debt, with monthly payments usually substantially lower than other strategies.
This stay of proceedings has another layer of benefit to you in that it also means creditors can no longer contact you for payment, even if your accounts have fallen behind. Your Licensed Insolvency Trustee (the administrator of your Consumer Proposal) will step into your shoes and take on communication about your debts on your behalf.
Any creditor harassment and collection actions including phone calls, court proceedings and even wage garnishments must cease immediately upon filing your Consumer Proposal.
- Flexible Debt Repayment Terms Tailored to Your Needs
Interest isn’t the only thing being cut with a Consumer Proposal – you can also reduce the amount of debt you need to repay down to a balance you can actually afford. Most often Consumer Proposals will offer creditors a portion of the debt they owe, with creditors agreeing to write-off/forgive the unpaid balance. Consumer Proposals are individually calculated with your specific circumstances, objectives and needs in mind.
Your Licensed Insolvency Trustee will help you work out a suitable offer to your creditors that takes into account your personal financial situation including your household budget, the amount of debt you can afford to repay and other financial goals you may have.
The guidelines around Consumer Proposals give you lots of flexibility in terms of how long your have to make your proposal payments and how much of your debt you repay. Unlike many consolidation loans that can last 7 or 10 years, a Consumer Proposal will last for a maximum of 5 years, and terms of 2-3 years are quite common.
Another advantage of the flexibility in Consumer Proposals: You are free to make additional payments to get ahead on your Consumer Proposal and even pay it off early at any point – without penalty.
Although most people will opt for monthly Consumer Proposal payments, it is possible to make a Consumer Proposal that offers your creditors a single lump-sum payment in full settlement instead of making monthly payments.
Consumer Proposal Examples
Here are two examples of real Consumer Proposals filed for BC residents that illustrate the dynamic terms that can be offered to settle debts in full.
Single parent who was struggling to manage their debt payments after the breakdown of their marriage:
- Total debt was roughly $42,360
- Monthly debt payments totaled over $1,200
- Consumer Proposal consolidated and cut total debt over 55%, down to $18,600
- New monthly debt payment / Consumer Proposal payment $310
- Proposal will be paid off in 60 months
Widower whose income was impacted due to fluctuations in their employment industry and was carrying debts accumulated during their spouse’s illness.
- Total debt was approximately $140,710 including a significant balance owing for income tax debt
- Monthly debt payments totaled over $7,100
- Consumer Proposal consolidated and cut total debt by 75%, down to $36,000
- Proposal paid off in one lump-sum payment provided by a family member who wanted to assist
- Short-Term Impact to Credit History
With a Consumer Proposal you can stop stressing about a maxxed out credit history or wondering when you will finally get to a debt-free state.
A Consumer Proposal will only be noted within your credit history for 3 years after you’ve completed your proposal (or 6 years from the date it started, whichever comes first). This is similar to the impact of a traditional or non-profit credit counselling program, even though these programs require you to repay 100% of your debt – plus professional fees.
If future financial goals such as buying a home or focusing on retirement savings are important to you, Consumer Proposals offer the advantage of a financial “reset”, allowing you to essentially “start your financial life over again”. Often people can pay off all their debts using a Consumer Proposal and accumulate an optimal credit history relatively quickly and with far less cost than if they continued to try to pay off their debts on their own.
You can apply for new credit at any time during the Consumer Proposal process – and most people are eligible for standard rates and terms on products from credit cards to mortgages (yes, even mortgages!) within 1-2 years of finishing their Consumer Proposal.
Qualifying for a Consumer Proposal
Consumer Proposals are a legal debt management option with few qualifiers, making a Consumer Proposal a very accessible consolidation tool for Canadians.
- Consolidate Without Borrowing
Consolidating multiple debts into one streamlined solution is a great way to simplify debt payments and manage your personal finances. Many individuals attempt to first consolidate their debts at their day-to-day bank, seeking to borrow enough to pay off other creditors and pay a lower interest cost than if debts were separately paid. Unfortunately, turning to lenders for consolidation means you are exchanging multiple debts for one bigger loan or line of credit that can be difficult to obtain without giving an asset to pledge as collateral, or getting a co-signer to assume joint responsibility for the consolidation loan. Enter Consumer Proposals which allow you to consolidate (and of course reduce!) your debt with no borrowing involved.
Because there is no borrowing needed a Consumer Proposal can be a viable solution regardless of your credit score and history, and a co-signer or pledge of an asset for collateral is not required.
Although Consumer Proposals can be an effective tool to address a serious situation such as a wage garnishment or severe collection action, you do not need to wait until your finances have reached a point of crisis. Consumer Proposals can be filed regardless of a high or low credit score since this is in no way a qualifying factor.
- Get Help with $1,000 – $250,000 of Debt
$1,000 is officially the minimum amount of debt a person must be facing to qualify for filing a Consumer Proposal to their creditors. While it’s unlikely that you would make a Consumer Proposal for debts of just $1,000, this debt threshold qualifier is set low so that this legislated debt solution remains accessible to Canadian consumers, should a range of situations cause you to seek professional debt help.
Debt levels for Consumer Proposals have a big range, between $1,000 and $250,000 – excluding mortgages on your principal residence. This threshold is doubled to $500,000 in the event of a joint Consumer Proposal, which is often considered by spouses to deal with a household’s entire debt situation.
If you do owe more than $250,000 (or $500,000 jointly) you are not necessarily excluded – you could instead potentially file a different type of debt proposal (called a Division I Proposal), and some guidelines slightly different to those in a Consumer Proposal would apply.
The only other real requirement for eligibility is that you are not in a position to immediately repay your debts in full with either the income or assets at your current disposal.
- No Income Cap
Generally you should have the ability to repay a portion of your debt with a Consumer Proposal, and for most people that will require them to have a reliable monthly income to support a recurring monthly payment. (Although in some cases, individuals will make a Consumer Proposal with the financial support of family or another close party.) There is however no guideline that limits your income or earnings potential if you are using a Consumer Proposal to consolidate your debt.
Your offer to your creditors remains in effect even if your income increases while your Consumer Proposal is active – so if you earn more you do not need to pay more. Many people are able to pay off their proposals earlier than anticipated because over time their income increases, but this is your choice – you do not have to make any additional payments solely as a result of an “improved” financial situation.
If your situation changes and your income decreases it may be possible to modify your Consumer Proposal terms to better accommodate your new circumstances, keeping your repayment manageable.
What to Keep and What to Consolidate in a Consumer Proposal
Consumer Proposals offer a dual advantage in that they will both 1) protect assets and, 2) consolidate virtually all of your debts. This is a combination unparalleled by other consolidation or debt settlement options in Canada.
- You Can Keep Your Assets
Consumer Proposals commonly offer to settle your debts by way of monthly payments, not by surrendering assets. This means people usually keep all their assets when they file a Consumer Proposal. Although you might choose to use the proceeds from the sale of an asset to form part (or all) of your proposal offer to your creditors, this is less common. To be clear, in a Consumer Proposal there is no “vesting” of your assets with your Trustee – you remain in control of your assets at all times.
As previously mentioned, because making a Consumer Proposal crystalizes your obligations and prevents creditors from pursuing you for payment or taking collection actions against you, a Consumer Proposal can be a highly effective tool in protecting assets from creditors.
Even in a personal bankruptcy process, there is no rule that would require you to give up all your assets. On the contrary, legislation exists that sets out property you are automatically entitled to keep in the event you file bankruptcy.
- Consolidates Virtually All Types of Debt
Consumer Proposals can cover virtually all types of debt – from common consumer debts like credit cards, overdrafts, lines of credit, payday loans to government debts such as income tax arrears, student loans, ICBC debt and more. It is often surprising for people to learn that there are options that can help with tax debt and in fact deal with a variety of types of government debts.
Besides declaring personal bankruptcy (or paying these debts off), a Consumer Proposal is the only method of debt settlement that the government will accept to forgive your debts – and using a Consumer Proposal will not prevent you from accessing government benefits in future.
If you have a ‘secured’ debt such as a mortgage or vehicle financing you can choose whether to maintain that account outside of your Consumer Proposal. You have the option of continuing as per your agreement or surrendering the asset to the creditor and ending the ongoing payments. If there is a shortfall this could be absorbed by your Consumer Proposal.
Consumer Proposal Services
Whether you are considering a Consumer Proposal or other type of debt counselling service, it’s important to get the facts about all your options firsthand from the correct professional so you can move forward and make informed decisions about how you want to manage your debts and ultimately become debt-free.
- Only Available Through a Licensed Insolvency Trustee
Making a Consumer Proposal is done with the assistance and expertise of a Licensed Insolvency Trustee, ensuring you benefit from having a trained and licensed debt help professional at your side throughout the entire process. Consumer Proposals can only be accessed via a Licensed Insolvency Trustee (you cannot file one on your own), and no other professional in Canada has the legal capacity to file a Consumer Proposal on your behalf.
Licensed Insolvency Trustees across Canada offer free confidential consultations and there is no need to get a referral to connect with a Licensed Insolvency Trustee. Although there may be many types of “debt help providers” in Canada, the Federal and Provincial governments only endorse a single professional to assist individuals through debt solutions – a Licensed Insolvency Trustee.
Be aware that consumer debt management can have many layers – advertisements or programs you may see can be misleading. For example: Many well-recognized credit counselling organizations are actually government-registered collection agencies.
Some credit counsellors may promote their debt management plans over other options you have, since they make money from your creditors (being paid a percentage of the debt they recover through your settlement). Whether for-profit or non-profit, credit counsellors charge unregulated fees that may include set-up charges, monthly maintenance fees, membership costs and more.
- Accredited Debt Counselling Services Without Added Cost
The entire Consumer Proposal process is designed to be transparent, including the cost of making a Consumer Proposal. Whatever payment amount you are offering to your creditors includes all the Consumer Proposal costs – costs which will essentially be paid by your creditors.
Unlike others, Licensed Insolvency Trustee’s fees in a Consumer Proposal are set and calculated by government tariff, not subject to an hourly “fee for service” or unregulated industry practices. These fees cover absolutely everything, including the government’s charge to register your proposal, all professional fees, disbursements and counselling costs. All costs are strictly calculated and simply deducted from the funds your creditors receive. There is no additional payment needed from you beyond what you are offering to your creditors.
With Sands & Associates there is no upfront fee payable to start your Consumer Proposal – all you pay is what you are offering to your creditors. Consultations are of course always free and without obligation to commit to any process.
Ready to get started with your own Consumer Proposal? Want to learn more about your debt management options? Connect with a friendly BC debt help expert at Sands & Associates – book your non-judgmental consultation today.