Understand the Benefits of Filing a Consumer Proposal for Your Debt

Dealing with debt is an uphill battle. There are many reasons we wind up in debt. People over-rely on credit cards to cover basic living expenses when their paycheck isn’t enough. They let bills go unpaid or let their credit card bills accumulate when they’re going through periods of unemployment. They take out lines of credit to renovate their homes or take out student loans to put themselves through school. They can even wind up owing tax debt that they weren’t anticipating.

At its simplest, a consumer proposal is a method of getting discharged from part of your unsecured debts and repaying a much smaller amount than you originally owed. While there are drawbacks, such as a temporary hit to your credit score, it can be an effective way to get out of debt and a much smarter alternative to bankruptcy.

If you’ve been struggling with large quantities of debt, these are some of the benefits of filing a consumer proposal over other methods of debt relief.

#1 You Work with a Licensed Insolvency Trustee First

Consumer proposals can only be filed by a Licensed Insolvency Trustee. These licensed debt experts are regulated under the Bankruptcy and Insolvency Act, unlike many of the people who operate debt consolidation or debt management programs.

Trustee teams like Bankruptcy Canada have an obligation to tell you about all of your options for debt relief, and help you identify the one that makes the most financial sense.

#2 Consumer Proposals Target Most Unsecured Debts

A consumer proposal will apply to most of your unsecured debts, with a few exceptions. Unsecured debts are any debts that you owe without collateral. This includes credit cards, payday loans, unsecured lines of credit (not including HELOCs), overdue utility bills, and even tax debt. It does not include mortgages or car loans.

The one exception is student loans less than seven years since the last time you were enrolled in post-secondary education. Student loans can feel like a debt trap, but they’re protected from bankruptcy and consumer proposals until you have been out of school for a certain period of time.

#3 Consumer Proposals Can Discharge 80% of What You Owe

The impact of a consumer proposal can be enormous. You can wind up having as much as 80% of what you owe forgiven, making it much easier to pay off. Here’s how it works:

• A Licensed Insolvency Trustee takes a close look at your finances to determine how much you can afford to repay within a 5-year time limit.
• They send out the proposal to your unsecured creditors.
• Your unsecured creditors vote on the proposal, with their votes weighed according to how much you owe.
• If the majority of your creditors accept the proposal, all of them are bound to it.

#4 You Pay Off Your Remaining Debt Over Time

You don’t have to repay the full amount immediately. The proposal is calculated based on the amount you can afford to pay monthly over a period of up to five years at maximum. This makes consumer proposals a great option for anyone with a steady income and assets that they want to protect from bankruptcy proceedings.

A consumer proposal can help speed up your debt recovery. Talk to a Licensed Insolvency Trustee to get more details about filing for one.