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Smythe Insolvency Helps You Understand Consumer Proposals

If you are facing overwhelming debt, you may think that bankruptcy is your only way out. However, you have other options for debt relief. One option that many individuals aren’t aware of is called a consumer proposal. This option allows you to propose an alternative repayment plan to your creditors and negotiate your debt down to a fraction of what you owe, which you can pay back in one manageable monthly payment. To help you better understand this process, the team at Smythe Insolvency has compiled a list of our most frequently asked questions regarding consumer proposals and how they work. If you have additional questions not listed here, please feel free to reach out to us.

What Is a Consumer Proposal?

A consumer proposal is an alternative to bankruptcy and is used as another option for debt relief. It is a formal binding offer made to your creditors about the repayment of your debt. In the proposal, you make an offer to all your unsecured creditors to repay them on terms that you can afford. Usually, this means settling your debt for less than the full amount you owe and repaying on a schedule that works best for you. After you complete the consumer proposal, all the unsecured debts included in it are forgiven. This process is an excellent option for individuals who need help repaying debts but have a steady income that allows them to make payments.

What Are the Benefits of Filing a Consumer Proposal?

Every person has a unique financial situation, which means they’ll need to consider all their options when deciding how to best solve their problems. A consumer proposal is an excellent alternative to filing bankruptcy and offers numerous benefits. Some of the best parts about filing a consumer proposal include:

  • Interest Stops: As soon as you file a consumer proposal, interest will stop accruing on your debts, which will make it easier for you to repay what you owe.
  • Collection Calls Stop: Your creditors will have to stop the incessant collection calls when you file a consumer proposal.
  • Protection from Legal Action: A consumer proposal protects you from legal action by your creditors, including wage garnishments, freezing of bank accounts, and collector calls.
  • No Forfeiture of Assets: Because you make an agreement with creditors to pay off a portion of your debt, you will not have to surrender your assets.
  • One Payment: You can make a single monthly payment that is significantly lower than having to pay all your creditors individually.
  • Possibility of Early Payment: If you have the funds to do so, you can potentially pay off your debts early, allowing you to complete the process sooner than planned.
  • Avoid Bankruptcy: You will avoid bankruptcy, which would otherwise negatively impact your credit for years.

What Debts Can Be Included in a Consumer Proposal?

Unfortunately, a consumer proposal does not cover all forms of debt. Only unsecured debts are eligible for a consumer proposal process. Unsecured debts are debts that are not secured by some form of collateral. For example, credit card balances, unsecured lines of credit, personal loans, CRA debt, student loan debt, and ICBC debt are all considered unsecured debts and can be included in a consumer proposal. On the other hand, mortgages and car loans are secured debts because the creditors in these instances have a claim to the asset if the payments are not made. These types of debts cannot be included in a consumer proposal, and creditors of secured debt can still attempt to collect the collateral if you don’t make payments.

What Happens to My Assets in a Consumer Proposal?

A consumer proposal will usually not affect your assets. If you continue to make payments on your mortgage and vehicle loans as required, you will be able to keep those assets. In addition, if your creditors accept your proposal, you will be able to keep your other assets as well. Any money you have invested in certain funds will be protected when you file a consumer proposal. However, our team will be able to give you more specific information about what will happen to specific assets during the process, as it can vary from case to case.

How Is a Consumer Proposal Different than a Bankruptcy?

Though a consumer proposal and bankruptcy both provide a way to relieve debt, there are some key differences between the two options. Understanding these differences will help to make it easier when deciding which option is best for your situation. The primary differences between these two debt relief solutions include:

  • Assets: In a consumer proposal, you will not have to surrender your assets, whereas, in a bankruptcy, you might have to.
  • Pre-Approval: A consumer proposal requires pre-approval by your creditors before it can be accepted. However, a bankruptcy is automatic, even though your creditors can still attempt to oppose your discharge.
  • Negotiated Payments: In a consumer proposal, your monthly payment amount will be negotiated upfront and agreed upon by you and your creditors. In contrast, payments during a bankruptcy are set by legislation and can potentially increase if your income rises.
  • Early Pay-Off: You may have the opportunity to pay off your consumer proposal early. On the other hand, bankruptcies have a pre-determined length set during the legislation.
  • Required Duties: You’ll have fewer required duties during a consumer proposal than you would during a bankruptcy. One example of this is that you don’t have to report your income and expenses in a consumer proposal.

What Percentage of Debt Do You Repay in a Consumer Proposal?

The answer to this question will depend on what your creditors are willing to accept. In most cases, creditors will agree to accept a proposal that offers to pay only a percentage of what is owed. Creditors are willing to accept proposals because it still allows them to recover more of the debt than a bankruptcy would. This means you will likely only have to pay a percentage of what you owe, which helps you get out of debt faster.

Can a Consumer Proposal be Rejected?

If your creditors are unhappy with the terms of your proposal, they can choose to reject it. It is the responsibility of your LIT to create a proposal that your creditors will accept. Once the proposal is created, your creditors will have time to review the specifics of the consumer proposal, and then acceptance of it will be put to a vote. The majority of creditors will have to agree to the proposal for it to be accepted. Your LIT will follow these guidelines to help increase the chances of a successful proposal:

  • The terms of your proposal should ensure that your creditors will receive more than they would if you were to file bankruptcy.
  • The proposal meets the minimum expectations of your creditors.
  • The payments are affordable and realistic for you to make every month.

How Long Does a Consumer Proposal Stay on Your Credit File?

Once you file a consumer proposal, a note is placed on your credit report that states that you entered a repayment arrangement with your creditors along with the date you filed. This notice will remain on your report for the entire time of your repayment plan and for three years following the completion of your proposal. However, the note can remain for six years if you file the proposal and then default on your repayment.

Can I Pay Off My Proposal Early?

Yes, it is possible to pay off your proposal early. Even though your monthly payment amount will be fixed once your creditors accept the terms of the proposal, you can choose to put more toward the payments if you get a raise at work or can afford more. Paying off your proposal early will allow you to begin the recovery process sooner, so you can start rebuilding your credit.

How Do I File a Consumer Proposal?

To file a consumer proposal, you’ll need the help of a Licensed Insolvency Trustee. You’ll first want to meet with a debt professional to see if you qualify for a consumer proposal. If your debts are high, and you’re not making enough income, you may not be eligible to file a consumer proposal for debt relief and may have to look into filing for personal bankruptcy. Our team will be able to assess your situation and determine the best course of action for you. Once we decide that a consumer proposal is the right choice, we will help you draft one. We’ll take into consideration your debt amount, your income, your expenses, and your creditor’s expectations, helping to increase the chances of a successful proposal. After drafting the proposal, we’ll present it to you for final approval and signing before sending it off to be filed.

Contact Us for More Information

If you are interested in learning more about consumer proposals and how they work, please reach out to us at Smythe Insolvency. We are conveniently located across Greater Vancouver and Vancouver Island to help clients find a way out of their debts and begin rebuilding their credit. Contact us today to set up a consultation where we can discuss your situation.

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