Although Consumer Proposals have been a debt solution available in British Columbia for some time, it is often a new term for people who are evaluating their options to get out of debt. The federal government empowers one type of designated professional to provide this powerful debt consolidation option to Canadians – Licensed Insolvency Trustees. We’ve put together our ‘Top 4 Common Consumer Proposal Myths’ to help clear up some frequently heard misconceptions about Consumer Proposals:
Myth: Consumer Proposals are lengthy and costly.
- A major benefit of a Consumer Proposal is that it allows a person to repay what they can afford. Often people will only need to repay 20-30% of the overall debt, in full settlement. Additionally, interest charges are automatically stopped.
- The length of time a person will pay their debt settlement under a Consumer Proposal varies depending on personal circumstance – but typically this would be for a period of 24-48 months, and no more than 60 months. For many people, the amount of time it would take for them to repay debts on their own, plus accumulating interest would be substantially longer.
- Another added benefit of filing a Consumer Proposal is that there are no hidden professional fees or charges – once you and your Trustee have worked out your monthly payment amount under the proposal, that is all you will pay.
Myth: Consumer Proposals don’t cover government debts.
- Nothing could be further from the truth. Filing a Consumer Proposal is the only available option (besides bankruptcy) that can be used to reduce or settle government debts in full, with no interest or penalties.
- Income tax debts, student loans, MSP premiums and even ICBC debts can all be consolidated and cleared using a Consumer Proposal.
Myth: Consumer Proposals are the same as Credit Counselling.
- There are several differences between traditional Credit Counselling and Consumer Proposals, although they will reflect similarly on a person’s credit history.
- Some key differences are:
- Credit Counselling requires each creditor to agree to the ‘program’ and 100% of the debts are repaid – creditors not in agreement are paid separately and can continue collection action.
- Consumer Proposals only need 50% of creditors in agreement to the debt settlement to be binding on them all – typically only a portion of the debt needs to be repaid, in full settlement.
- As mentioned above, Consumer Proposals are the only way to resolve government debts and they are accepted by all major banks, whereas government bodies will not accept settlement through traditional Credit Counselling.
- Lastly, there are no set qualifications or regulatory body for Credit Counsellors, and miscellaneous fees are typically charged in addition to monthly payments.
- Some key differences are:
Myth: Consumer Proposals ruin your credit permanently.
- Consumer Proposals in BC will be noted on a person’s credit history for three years after completion (or six years from the date they started, whichever is soonest). This does not preclude a person from applying for future credit during this period, and it is not uncommon to be eligible for major financing such as a mortgage within two years.
- A Consumer Proposal provides a ‘reset’ on credit history, allowing people to start over with a fresh start. There are also two financial counselling sessions as part of the proposal process focused on budgeting and boosting credit ratings.
It’s important for people to understand all their options about how to consolidate debt before committing to a debt management program or other financial contracts. Get the information you need to move forward confidently for a financial fresh start – contact a Licensed Insolvency Trustee to discuss your situation and all your options, consultations are free, confidential and at no obligation.