Almost half of all Canadians find themselves with less than $200 to spare by the end of the month, leaving them vulnerable to financial challenges. In today’s uncertain economic climate, unexpected expenses can easily push you into debt, leaving you uncertain about your next steps.
You might be burdened by debt, but you could also have valuable assets you wish to protect. Concerns about the long-term repercussions of bankruptcy may be on your mind. Fortunately, there’s an alternative solution – a Consumer Proposal, which can offer you a fresh financial start.
If you’re grappling with financial stress and struggling with payments, seeking guidance from a Licensed Insolvency Trustee at Harris & Partners is a wise step. They can help you explore options and propose a debt repayment plan to your creditors. Harris & Partners provides expert assistance and complimentary debt counseling to assist you in regaining financial control.
Now, let’s assess the advantages and disadvantages of filing a Consumer Proposal to help you determine if it’s the right solution for your unique circumstances.
Is a consumer proposal worth it?
Consumer proposals can provide significant benefits in managing overwhelming debt, making them worth considering. Here are key reasons to explore a consumer proposal:
- Debt Relief: Consumer proposals offer a structured way to regain control of your finances, preventing debt from snowballing with fees and penalties.
- Bankruptcy Alternative: If you prefer not to go bankrupt, a consumer proposal is an attractive alternative. It doesn’t require as much financial record-keeping as bankruptcy.
- Debt Repayment: Consumer proposals are ideal if you can’t afford to repay all your debts in full. You work with a Licensed Insolvency Trustee to determine affordable payments over a reasonable period.
- Partial Debt Repayment: If you want to pay back a portion of your debts, a consumer proposal allows you to design a plan that aligns with your financial capacity.
- Stopping Collection Activity: A consumer proposal legally halts all creditor collection activities, including garnishments, providing immediate relief from financial stress.
Consider these factors to decide whether a consumer proposal is the right solution for your debt challenges. Consulting a Licensed Insolvency Trustee is a vital step in making an informed decision.
Pros of a Consumer Proposal
Filing a Consumer Proposal offers numerous advantages, making it a compelling solution for many. Here’s a concise summary of its pros to help you assess its suitability for your situation:
- Halts creditor collection actions immediately.
- No additional interest accumulates on your debts.
- No need for monthly income and expense reports.
- You retain all your assets and tax refunds.
- Repayment amount is less than your total debt.
- Offers better recovery to creditors than bankruptcy.
- Fixed monthly payment, unaffected by income increases.
- Provides a pause on student loan collections, though interest continues.
- Creditor approval is obtained at the outset, eliminating court hearings.
- Payments align with your financial means.
- Lesser impact on credit report if you’ve previously declared bankruptcy.
- Permits keeping credit cards with zero balances.
- Offers budgeting and money management counseling.
- Allows for early payment of the Proposal via increased payments or lump sum.
- Safeguards your assets, including tax refunds, investments, and home equity.
- Lowers monthly payments substantially, often reducing debts by up to 70%.
- Fixed payment amount, unaffected by income changes.
- Provides creditor protection, halting collection calls and garnishments.
- Can reduce unsecured debts by up to 75%.
- Offers a bankruptcy alternative with a structured payment plan.
- Consolidates all debts into a single, fixed monthly payment.
- Legally settles unsecured debts, including those with the Canada Revenue Agency (CRA).
- Minimizes damage to your credit rating.
- Accelerates recovery from overwhelming debt.
Throughout the Consumer Proposal process, you’ll benefit from the knowledge and support of a Licensed Insolvency Trustee (LIT). The LIT communicates with your creditors on your behalf and guides you through every step.
Cons of a Consumer Proposal
Before deciding if a Consumer Proposal is the right debt solution for you, it’s crucial to consider both its advantages and disadvantages. While it offers benefits, such as stopping creditor actions and protecting assets, there are drawbacks to take into account.
Here’s a concise summary of the cons associated with a Consumer Proposal to help you make an informed decision:
- If the majority of your creditors reject the Proposal, you may have to resort to bankruptcy.
- Consumer Proposals typically take four to five years to repay, longer than a standard bankruptcy.
- Payments are fixed, making it cumbersome to adjust monthly amounts without amending the Proposal and undergoing the voting process again.
- Defaulting on the Consumer Proposal by falling three months behind in payments bars you from filing another Proposal until the included debts are fully paid.
- A Consumer Proposal appears on your credit report and adversely affects your credit score for three years post-completion.
- Some financial institutions treat a Proposal on your credit report similarly to a bankruptcy when you’re rebuilding your credit.
- A Consumer Proposal is only viable for those with less than $250,000 in debt (excluding the primary residence mortgage).
Additional factors to consider:
- Time: Consumer Proposals usually take longer to complete than bankruptcy, and lower monthly payments extend the repayment period. However, early payment is an option if your financial situation improves.
- Credit Rating: A Consumer Proposal does impact your credit with an R7 rating, lasting for three years after completion.
- Proposal Terms: Strict adherence to payment and agreement terms is essential; missed payments or falling behind can terminate the Proposal.
- Suitability: If you lack a substantial income and assets at risk of seizure, a Consumer Proposal may not be beneficial, and personal bankruptcy might be more suitable.
If the disadvantages of a Consumer Proposal outweigh the benefits for your situation, consult with a Licensed Insolvency Trustee (LIT) to explore alternative debt relief solutions better suited to your needs.
Take control of your finances with Harris & Partners
Consulting a Licensed Insolvency Trustee (LIT) is essential when considering a consumer proposal. LITs, like Harris & Partners, offer a free consultation to assess your eligibility and financial situation. It’s important to note that the law mandates LITs to administer consumer proposals, so avoid paying unqualified debt counsellors for similar services.
Dealing with debt can be complex, and determining the appropriateness of a consumer proposal for your unique circumstances can be challenging. Therefore, seeking guidance from a licensed insolvency trustee is strongly recommended.
For a discussion regarding consumer proposals in Canada with one of our licensed insolvency trustees, please contact Harris & Partners Inc. at 1-800-268-8093 today.