What is Consumer Proposal | How It May Help Your Debts

A consumer proposal is a formal offer to your creditors to pay back all or part of what you owe them over a period of time. It is an agreement between you and your creditors about how much money you can afford to pay back each month.

The benefits of a consumer proposal include:

  • Paying less in interest
  • Paying a fixed amount that you can afford
  • Avoiding bankruptcy
  • Preventing wage garnishment
  • You can maintain your assets, such as property or a business.
  • You will avoid court and its associated costs, 
  • It is more discreet and private than a bankruptcy

How does a consumer proposal help your debts

A consumer proposal is a legal process that offers individuals with overwhelming debt an alternative to bankruptcy.

The proposal is negotiated with creditors and the government, who will reduce your debts in exchange for a lump sum payment or monthly payment over a set period of time.

As such, your monthly payments are lower than what you would otherwise pay, and they don’t increase — even if your income rises.

For example, if you owe $15,000 on a credit card and you agree to an arrangement with your creditor in which you make payments of $750 a month for five years.

Your total debt will not grow beyond $10,250 and after the five-year period is over. All amounts remaining are forgiven and there is no obligation to pay any further.

Consumers with high levels of debt can file a consumer proposal under the Bankruptcy and Insolvency Act (BIA) in order to regain control over their finances.

This type of debt relief can be used by individuals who are unable to pay off their unsecured debts. Such as credit cards and lines of credit.

This type of debt relief can protect consumers from the consequences of bankruptcy. Damaged credit ratings and garnished wages are its examples.

Creditors will often agree to a consumer proposal because they would get some money back. Even if it’s less than the amount owed, on a regular monthly schedule. Rather than wait endlessly for full payment that’s not sure to come.

They would prefer it over bankruptcy, where there is a chance the debt could be totally wiped off and they get nothing at all.

See Also: How to Reduce Your Debts

What is Bankruptcy

It is a legally binding agreement between you and your creditors to repay a portion of your debts for up to five years. This means, you are required by law to make the payments for the duration of the proposal. If you do not, your creditors can take legal action against you.

  • Keep in mind, you’re already getting a great deal –
  • Your pay back much less than 100% of the money you owe.
  • Pay a fixed monthly amount with 0% interest.
  • You have five years to make the payments, and you can pay the proposal off early if you can afford it.

That’s a great deal for you, and it’s also a good deal for the creditors, so it’s only fair you stick to your end of the bargain and they have every right to pursue you if you don’t.

What types of debt can be included in a consumer proposal 

Consumer proposals can include any type of unsecured debt.  As an example, credit card debt, car loans, medical bills, and bank loans all count towards the maximum amount allowed for a consumer proposal.

See Also: How to pay Off your Debts

However, secured debt like mortgages, vehicle loans and lines of credit are not included in this process. This is because the lender is going to take back the collateral for that loan if the proposal is accepted.

If you’re getting calls from creditors because you’re late on payments. The first thing you must do is meet with a Licensed Insolvency Trustee (LIT). The only debt professional with legal powers or the ability to file a consumer proposal.

Contact us to find out how we can help you be free of your debt problems.

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