Wednesday, 7 October 2015

Need to Know: What is a Consumer Proposal?

It is no secret that many Canadians struggle with debt. The ease with which credit is granted, followed by the difficulty in trying to resist the temptation to buy what we perhaps can’t necessarily afford, means that Canadian consumer debt seems to continually grow, even when we are continually cautioned.

With this consumer debt comes the need for debt relief. Debt relief can take many forms, some more well-known than others. This week we are looking at one of the most popular forms, the consumer proposal, and answering a common inquiry: what is a consumer proposal.

Similar to a bankruptcy, a consumer proposal is a legal solution for dealing with debt. That being said, it is not a bankruptcy, and in many cases individuals find consumer proposals to be better when it comes to assets. For example, many people who opt for consumer proposals are able to keep their homes or cars.

So, what is a consumer proposal? When you are in debt, and can’t seem to get any traction as far as paying it off, you may choose to make a proposal to your creditors, based upon an income and asset calculation. This is a consumer proposal. In this proposal, you offer to pay creditors either all or a certain percentage of the debt owed, monthly, over a term of typically 4-5 years. The amount of your proposal is based upon your income/assets and your ability to pay.

Once this proposal is presented to your creditors, they have a finite period of time to vote to accept or reject it. Once accepted, this becomes a legally binding contract between you and your creditors, and you begin making the monthly payments.

Benefits of a consumer proposal:

·         Debt is usually reduced in a proposal but even if it is not the proposal will stop interest from accumulating.
·         A consumer proposal stops collection action being taken by unsecured creditors, such as wage garnishments, frozen bank accounts, etc…
·         A consumer proposal can be paid in full at any time, and will be removed from your credit report 3 years following the date in which it is paid in full.

A consumer proposal is a legal solution, one covered under the Bankruptcy and Insolvency Act, and while it is not a bankruptcy, it is administered by a trustee.

Something to keep in mind: a bankruptcy trustee is an administrator who earns money based on the size of the proposal negotiated. They do not represent you – they are a court appointed officer with a job to ensure that you make a proposal that is a win for your creditors. This can be confusing because many trustees advertise solutions as though they represent you, when in fact they are more subjective than that, and often working for their own best interests.

A proposal is a good solution, but you should not make one through a trustee unrepresented. A representative represents you so you can speak openly without consequence. A representative can negotiate the deal on your behalf with the trustee, and can often negotiate a more competitive deal than had you gone directly to the trustee.

So, what is a consumer proposal? A very viable debt relief option - but one that you should know all about before contacting a trustee. Call DebtCare today - we represent you, not your creditors. 1-888-890-0888.


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