Consumer Proposals as an Alternative to Bankruptcy
Consumers who are facing significant debt often have few options other than declaring bankruptcy. While bankruptcy does offer certain benefits, it should generally be used as a last resort; consequences of bankruptcy can include the surrender of property, long-lasting negative credit ratings and more. Fortunately, Canadian bankruptcy laws offer a viable alternative in the form of a consumer proposal. For those that qualify, a consumer proposal offers a reasonable and cost-effective way of discharging debt.
What is a Consumer Proposal?
A consumer proposal is a legally binding, negotiated agreement between the debtor and creditors. The agreement includes a possible reduction of the debt itself and a structured payment plan (typically, equal monthly payments). To be eligible, an individual must owe less than $250,000 (excluding primary residence mortgage), have the financial ability to make some monthly payments and be unable to repay existing debts otherwise.
Benefits of a Consumer Proposal
With a consumer proposal, all interest charges will halt, your debt will be consolidated into one monthly payment, you won’t have to surrender assets, and you can resolve your debt in less than five years. Furthermore, you don’t have to worry about any hidden charges or fees, and you will put an end to the harassing collection calls.
A consumer proposal presents the opportunity for those sinking in unmanageable debt to consolidate your bills and create a workable, long-term financial solution without having to liquidate your assets through bankruptcy. Though you will take a credit hit with a consumer proposal, the impact is markedly less than if you had to declare bankruptcy.
If your lucks turns around midway through your repayment plan and you happen to score that high-paying job, gain a large inheritance or hit the lottery, the terms of your repayment will not change and you will retain your newly found gains. There is also no real risk in researching a consumer proposal, as many firms will provide free consultation before you make a decision.
Consumer Proposal Application
To initiate a consumer proposal, the debtor—with the assistance of a legal administrator—makes a proposal to the creditors to pay off all or part of the outstanding debt over a period of time typically not exceeding five years. If the proposal is accepted, all creditors are bound to it and the debtor begins to make monthly payments into a trust that is overseen by the administrator. The administrator then pays creditors from the trust in accordance with the terms of the agreement.
Consumer Proposals Stop Legal Actions of Creditors
According to Keith G. Collins Ltd., the acceptance of a consumer proposal also stops all legal action against the debtor from unsecured creditors. In addition, the debtor retains his assets and the interest on this debt stops accumulating. Upon the completion of payments, the debt is fully eliminated.
For example: John has a collective debt of $100,000 and has exhausted most other options; he opts for a consumer proposal. His administrator submits a proposal and the creditors agree to settle for a 40% reduction in debt. John will now owe $60,000 and will pay this debt over the course of five years, with a monthly payment of $1,000. John will also retain his assets, will not be required to relinquish anything, and will have interest on his negotiated debt frozen.
A consumer proposal is an excellent tool available to those in debt. It provides many benefits but without the negative effects of a bankruptcy. Under the right circumstances, it may be the optimal path forward for a consumer who is saddled with debt. Those who are eligible should consider filing a consumer proposal and should contact a qualified administrator to begin the process.
Category: Bankruptcy
