When it comes to debt management solutions Canadians have many options to consider. Consumer Proposals are a powerful alternative to avenues such as consolidation financing, credit counselling and even personal bankruptcy.
Read on to learn more about how the legally-backed debt consolidation of Consumer Proposals works and factors that are considered when calculating how much debt a Consumer Proposal can cut. We’ve also included some examples of real Consumer Proposals filed for BC residents, illustrating how much debt may be written-off and the variety of circumstances a Consumer Proposal can be tailored to meet.
What is a Consumer Proposal and How Does it Work?
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 are unique in many ways, one of which is that they allow you to deal with virtually all types of debt in one simplified settlement proceeding. You can include debts from credit cards, overdrafts, lines of credit, personal loans, payday loans, income taxes, student debts and more. Just about every debt that was incurred honestly can be consolidated and reduced using a Consumer Proposal.
Most Consumer Proposals will be set up so you make monthly payments on your new reduced consolidated debt balance. There is no minimum payment term, and the maximum time within which a Consumer Proposal must be completed is 5 years.
Advantages of Consumer Proposals
Aside from significantly reducing your debt, some of the other notable advantages to doing a Consumer Proposal include:
- A Clear Plan
- Payment terms are clearly defined and you will be able to have a “debt-free” date.
- You can pay off your Consumer Proposal early at any time if you choose to do so, without penalty or strings attached.
- No Borrowing
- You will not need to get a loan or any other financing to consolidate debts under a Consumer Proposal.
- There are no interest charges on your consolidated debts.
- There is no need for a co-signer or asset to offer as a ‘guarantee’.
- Your credit score and credit history are not qualifying factors. A Licensed Insolvency Trustee can help you regardless of your credit status and no credit check is needed.
- Breathing Space from Creditor Actions
- Creditors will be prohibited from contacting you for payment, charging you more interest, fees, penalties, or pursuing collection actions (including wage garnishments) against you.
- A qualified Licensed Insolvency Trustee will work with you throughout the process and communicate with creditors on your behalf.
- Affordable Payments
- Cutting your debt without interest charges means a Consumer Proposal is usually the lowest and most affordable monthly payment possible to pay off debt.
- All costs of administration are set by the Federal Government and are always included in the repayment offer to your creditors; there are no added fees for service or professional costs.
- Most people just make a first monthly payment when they officially start their Consumer Proposal – no up-front or extra payments are required.
Read 10 Consumer Proposal Facts Everyone Should Know
Filing a Consumer Proposal
To get started with a Consumer Proposal you will need to connect with a Licensed Insolvency Trustee serving your local area and you can do this directly, no referral is needed. Consultations to discuss your situation and explore your options for making a Consumer Proposal (and other solutions) are free, and you are under no obligation to commit to any process.
Other debt management “programs” may sound like Consumer Proposals – it’s important to know that Consumer Proposals and their legal protections are only available by working with a Licensed Insolvency Trustee. You can click here to be connected with our BC Licensed Insolvency Trustees.
Cutting Debt – Calculating a Consumer Proposal Repayment
Because a Consumer Proposal is customized to meet each person’s specific needs, there is no one answer to “how much debt can Consumer Proposals cut?”. In general, having debt cut down so that you are repaying as little as 20% to 50% of the total balance is a reasonable guideline.
To determine what an appropriate Consumer Proposal offer would be in your particular set of circumstances, your Licensed Insolvency Trustee will take some key factors into consideration, including:
- Total Amount of Debt
- To be successful your Consumer Proposal should provide for a ‘meaningful’ portion of your debts being repaid.
- If the debts are such that you are able to afford to repay at least 20-40% of your total debts, then a Consumer Proposal can be a great fit.
- Remember, debts included in the proposal are frozen – so there is no ongoing added interest to factor in.
- A Bankruptcy Comparison
- To help set a standard for what a ‘meaningful’ amount of debt repayment might be, your Trustee will start by calculating how much of your debt creditors could expect to have repaid if you were to file bankruptcy instead of making a Consumer Proposal.
- Once this is determined, your Trustee can use this number as a starting point to begin estimating proposal payment amounts.
- In many circumstances we see, creditors would receive nothing in this hypothetical bankruptcy comparison, leaving them very willing to consider reasonable proposal offers that would result in some recovery on the debts owing, rather than a total write-off if the individual opted to file for personal bankruptcy.
- Your Income / Ability to Make Payments
- Your overall household budget and family situation generally are the largest factors in determining what repayment terms will make for a successful Consumer Proposal.
- Family-size, income levels and personal budgets need to be considered to ensure your Consumer Proposal gives you breathing room from creditors and allows you to have manageable finances, debt-free.
- Special Considerations
- Although most Consumer Proposals offer monthly payments, we know this won’t always work for everyone. Fortunately, you can still make a successful Consumer Proposal with terms tailored to your individual needs. Some common alternatives to monthly payments include (but are not limited to):
- Making a lump-sum payment
- Using proceeds from the sale of an asset (that may or may not be otherwise yours to keep)
- A third-party (i.e. family member, friend, etc.) making a lump-sum or regular payments on your behalf.
- In situations where it’s not feasible for you to repay anything towards your debt (i.e. your income is very low or uncertain), personal bankruptcy may be another solution to explore.
- Although most Consumer Proposals offer monthly payments, we know this won’t always work for everyone. Fortunately, you can still make a successful Consumer Proposal with terms tailored to your individual needs. Some common alternatives to monthly payments include (but are not limited to):
Remember that no two situations are exactly alike! To explore your options and estimate your own Consumer Proposal you should always connect with a Licensed Insolvency Trustee. We can help you get a detailed plan that’s right for you during your very first meeting with us.
As Licensed Insolvency Trustees it’s important that we help facilitate a Consumer Proposal that is truly affordable and advantageous for you. We follow a clear code of ethics and rules of professional conduct, and that means ensuring your Consumer Proposal can fit within your means without causing you undue hardship. It’s also helpful for you to know that Licensed Insolvency Trustees are essentially a neutral and independent party, we do not work for your creditors and do not receive any funds from creditors either.
Learn More about Preparing for your Debt Consultation
Consumer Proposal Examples
Below are a few real-life examples that demonstrate how Consumer Proposals worked to cut debt for just a few of the thousands of people we assist each year. You can see how the offers to creditors varied depending on the person’s income, the amount of debt they had, and their personal situations.
You can also click here to meet some other people who worked with Sands & Associates and hear them tell their stories in their own words.
Consumer Proposal Example #1:
This client was 43 years old and had accumulated debt due to previous periods of unemployment. They were carrying around $9,000 of consumer debts, including multiple payday loans.
For their Consumer Proposal they made monthly payments of $200 for a total of 24 months.
- Result: $9,000 debt settled at $4,800 with a Consumer Proposal – debts cut by almost 50%.
Consumer Proposal Example #2:
This client was a 70-year-old widow who was carrying debts brought on to bridge the gap in increased living costs after the passing of their spouse. They had around $17,000 of consumer debts.
Their Consumer Proposal offered monthly $150 payments for a total of 42 months.
- Result: $17,000 debt settled at $6,300 using a Consumer Proposal – debts cut by over 60%.
Consumer Proposal Example #3:
This client had almost $84,000 of debt, brought on by periods of unemployment and supporting extended family. They were facing credit card minimum payments of over $1,400 a month, and had an additional balance owing to Canada Revenue Agency for income taxes.
They offered monthly payments of $470 for a total of 60 months in their Consumer Proposal.
- Result: $83,860 debt settled at $28,200 – debts cut by nearly 70% with their Consumer Proposal.
Consumer Proposal Example #4:
This client was carrying debt totaling over $140,000, brought on over several years where they faced costs associated with their spouse’s cancer treatments, followed by financial challenges of single parenting after their spouse passed away, as well as their own medical condition and difficulties obtaining employment.
Rather than monthly payments, their Consumer Proposal offered creditors to share in a lump-sum payment of $36,000.
- Result: $140,700 debt (including a $40,000 balance to Canada Revenue Agency) was settled for $36,000 in their Consumer Proposal – debts cut down almost 75%.
When trying to determine just how much of your debt could be eliminated using a Consumer Proposal it’s always best to connect with a Licensed Insolvency Trustee directly to understand how specific consumer rights and remedies can be applied to your situation.
There is no cost to map out your Consumer Proposal and evaluate all your options to meet your debt-free goals. We’re here to help you get your financial fresh start!
Learn more about Consumer Proposals, get advice about your situation, or start your plan to be debt-free – book your free confidential consultation today.
