Although filing a Consumer Proposal is a debt management option that has been around for some time, it’s only in recent years that more Canadians have become aware of this powerful alternative to bankruptcy. A Consumer Proposal allows you to make a legal arrangement with your creditors wherein you’ll only have to repay a portion of your debts – in full settlement – with no interest, fees or additional penalties. In fact, it’s not uncommon for debts to be reduced by 70-80%! Consumer Proposals can only be filed by a Licensed Insolvency Trustee (“LIT”) and have substantial advantages compared to traditional credit counselling programs or debt consolidation loans.
One of the many benefits of a Consumer Proposal is that it is tailored to meet the specific needs of the individual. Let’s review some of the factors that come into play when assessing a person’s ability to file a Consumer Proposal, and share some real-life examples of how much debt some individuals we’ve assisted were able to eliminate:
Consumer Proposal key success factor #1: Total amount of debt – The total amount of debt is important as a proposal can only succeed if you are able to repay a ‘meaningful’ portion of the debt outstanding. If the debts are such that you are able to afford to repay at least 20-40% of the balance, then a consumer proposal can be a great fit.
Interest will automatically be frozen by law on the debt – this is significant as it means the debt will not continue to grow. We often meet with people making large monthly payments on their debts, but because of accruing interest they’re never able to pay the debt off completely.
Consumer Proposal key success factor #2: Monthly household income – The household budget plays the largest factor in determining what sort of repayment terms will make for a successful Consumer Proposal. Family-size and personal budgets need to be carefully considered to ensure that your Consumer Proposal gives you breathing room and allows you to have manageable finances, debt-free.
Here are a few examples that show how three Consumer Proposal worked for people who each had a very different set of circumstances. You can see how the settlement to their creditors varied depending on income, the amount of debt, and their personal situations:
- 35-year old skilled tradesman with health issues
- Held approximately $55,000 in consumer debts
- Creditors were calling him daily
- Minimum payments were taking up half of his $3,200 monthly income
His Consumer Proposal was filed, which stopped all interest, stopped all the calls and reduced the debts from $55,000 to $23,400 in total. He agreed to make monthly payments of $650 over a 36 month period.
- 43-year old woman who had previous periods of unemployment
- Was carrying around $9,000 of consumer debts
- Multiple payday loans
For her Consumer Proposal she made monthly payments of $200 a month for a total of 24 months. We were able to settle her debts in full at $4,800 total, with no interest or added fees.
- 70-year old widowed woman with increased living costs
- Had around $17,000 of consumer debts
Her Consumer Proposal called for repayment of $6,300, by way of monthly payments of $150 for 42 months, which would reduce her debts by around 65% in full settlement.
When trying to determine just how much of your debt could be eliminated using a Consumer Proposal it’s always best to meet with a Licensed Insolvency Trustee face-to-face. There is no charge for this meeting and it’s also an opportunity to find out about other possible options you may have available to create a debt-free future.