Wednesday, 29 July 2015

Filing a Consumer Proposal in Canada – Does it Make the Most Sense for You?

The frequency with which Canadians are filing consumer proposals in order to get back on solid financial ground has increased significantly in the last few years. The reason is fairly obvious; the ability to stop collection action, halt interest, combine all payments into one, and often to negotiate for a smaller repayment amount, make filing a consumer proposals in Canada a very attractive debt relief option.

However, because a consumer proposal is a solution for dealing with financial problems, some assume that individuals on the lower end of the income scale with limited assets are the most likely candidates for a proposal. It is actually quite the opposite – often consumer proposals in Canada are filed by higher income earners.

Why? A major factor is the fact that, a few years ago, bankruptcy laws in Canada changed.

Higher income earners - Now there is an income and expense calculation (which is very low by the way) that looks at whether you earn more than a basic amount. If you do, 50% of any additional income is surplus income in a bankruptcy, so a higher income earner ends up having massive monthly payments. Also, if you have surplus income, you have to make monthly payments in bankruptcy for 20 months as opposed to 9 months (the limit if you are under the income/expense limit).

Homeowners - Believe it or not, in bankruptcy and in consumer proposals, many people are able to keep their homes! In a bankruptcy though, home equity is considered surplus income and so 50% of that equity has to be repaid. Instead, many homeowners opt for a proposal because it is a negotiated settlement so there is room to negotiate that less equity be repaid.

In a consumer proposal, you offer your creditors a sum that you will repay that covers all unsecured debt. As soon as a consumer proposal is filed, the creditors have a specified amount of time to accept or reject. Creditors who don’t answer are considered as accepting. As long as creditors representing 51% of the debt accept, the proposal goes through.

If accepted, the person has to make a minimum payment equal to the amount of the proposal divided over 48 or 60 months. That said, a consumer proposal can be paid in full at any time which also makes it more attractive to higher income earners, especially those who get large annual bonuses.

An additional reason for the attractiveness of a proposal is the impact it has on your credit rating. If paid off within 1 month to 3 years, a consumer proposal ends up being on your credit less time than a bankruptcy.

If you are struggling with debts and the threat of collection action, call DebtCare Canada today. Filing a consumer proposal may just make the most sense for you! 1-888-890-0888.

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