Considering a Consumer Proposal? Here Are 8 Key Questions to Ask

The rising cost of living and current escalating interest rates have led to Canadians owing a record amount of debt. It can feel overwhelming if you’re facing financial challenges that are leaving you struggling to meet your debt obligations. Happily, there’s another option to declaring Bankruptcy.

A Consumer Proposal can be a viable way to regain control of your finances. As a formal agreement between a debtor and their creditors, the proposal outlines a revised repayment plan.

But before you commit to this debt relief option, it's essential to understand how long a consumer proposal will last and its potential impact on your financial future.

What exactly is a Consumer Proposal?

A Consumer Proposal is a legally binding debt settlement arrangement governed by Canada’s Bankruptcy and Insolvency Act (BIA). It allows Canadians to negotiate with their creditors to repay a portion of their debts over an extended period, usually up to five years. This is an attractive alternative for those who have a stable income and want to avoid the consequences of declaring Bankruptcy.

How long does a Consumer Proposal usually last?

The term of a Consumer Proposal depends on various factors. These can include your financial situation, the amount of debt you owe and your ability to repay. Usually, a Consumer Proposal lasts up to five years, but it can be shorter if you can repay the debt sooner.

What is the Licensed Insolvency Trustee (LIT)?

When considering a Consumer Proposal, it is crucial to work with a Licensed Insolvency Trustee (LIT). The LIT is a licensed professional authorized by the government to administer Consumer Proposals and Bankruptcies. They will review your financial situation, assess your ability to repay and negotiate with your creditors on your behalf.

What is the proposal process?

Before filing a Consumer Proposal, the LIT will assess your debts, assets, income and expenses to determine a reasonable repayment plan. Once the proposal is drafted, it will be sent to your creditors for approval. Creditors have 45 days to vote on the proposal, and if the majority agrees, the proposal becomes legally binding for all creditors, including those who voted against it.

What are the advantages of a Consumer Proposal?

A Consumer Proposal offers several advantages to those who are facing large debts:

Debt relief: A Consumer Proposal allows you to reduce the total debt you owe, making it more manageable to repay.

Stopping collection actions: Once the proposal is accepted, creditors must stop all collection actions, including phone calls and wage garnishments.

Protection of assets: Unlike Bankruptcy, a Consumer Proposal allows you to keep your assets while addressing your debts.

Fixed payments: Throughout the proposal's duration, your monthly payments remain consistent, making budgeting easier.

How will a Consumer Proposal impact my credit score?

Entering into a Consumer Proposal will have an impact on your credit score. The proposal will remain on your credit report for three years after completing the repayment, or six years after filing the proposal (whichever comes first). However, if you were struggling with overwhelming debts before the proposal, your credit score might already be affected.

Is there an early repayment option?

If your financial situation improves, you can repay the Consumer Proposal early. Early repayment can significantly shorten the proposal's duration and minimize its impact on your credit score. Before doing so, consult with your LIT to determine if it’s the right decision for your specific circumstances.

What happens next?

Once you complete the Consumer Proposal payments, your LIT will issue a Certificate of Full Performance. This certificate confirms that you have fulfilled all the proposal terms and that the remaining outstanding debt is legally discharged.

A Consumer Proposal is a valuable debt relief option if you’re struggling with unmanageable debt loads. But before deciding if this is a good option for you, consider its potential benefits and impact on your credit score. Seeking professional advice from a Licensed Insolvency Trustee will help you make an informed decision and take significant steps towards regaining financial stability.

Remember, every financial situation is unique, so carefully assess your options and choose the one that aligns with your long-term financial goals. The sooner you talk to a Licensed Insolvency Trustee, the sooner you’ll reach a more favourable financial position.