Understanding Consumer Proposals: 10 Essential Facts
Consumer Proposals serve as an effective solution to handle debt, providing a popular alternative to traditional consolidation loans and a preferred option to personal bankruptcy in Canada. Yet, despite their effectiveness and popularity, many are still unaware of the benefits and intricacies of Consumer Proposals. This article aims to shed light on the top 10 facts about Consumer Proposals you should know.
1. Benefits of Consumer Proposals
Consumer Proposals come with several distinct advantages over other debt management options. These benefits are inherent to the process and do not require negotiation with creditors.
1.1 Stops Interest Charges Automatically
Interest charges on debts can make it challenging to pay off even a modest balance. Credit card debts, in particular, can seem nearly impossible to pay down if only minimum payments are made. A Consumer Proposal puts a stop to these ongoing interest charges automatically, without negotiation. This automatic freezing of interest makes Consumer Proposals one of the most affordable options for debt payment.
1.2 Customizable Debt Repayment Terms
Consumer Proposals not only stop interest but also allow you to reduce the amount of debt you need to repay down to a balance you can actually afford. Most proposals offer creditors a portion of the debt owed, with creditors agreeing to write-off/forgive the unpaid balance.
Your proposal will be individually calculated keeping in mind your specific financial situation, objectives, and needs. Unlike many consolidation loans that can last 7 or 10 years, a Consumer Proposal will last for a maximum of 5 years, and terms of 2-3 years are quite common.
Consumer Proposal Examples
To better understand how Consumer Proposals work, let’s look at two examples of real proposals filed by BC residents.
Example 1:
- A single parent struggling to manage their debt payments after a marriage breakdown.
- Total debt: $42,360
- Monthly debt payments: Over $1,200
- Consumer Proposal cut total debt over 55%, down to $18,600
- New monthly debt payment / Consumer Proposal payment: $310
- Proposal will be paid off in 60 months
Example 2:
- A widower with unstable income due to industry fluctuations and debts accumulated during their spouse’s illness.
- Total debt: Approximately $140,710 including significant income tax debt
- Monthly debt payments: Over $7,100
- Consumer Proposal cut total debt by 75%, down to $36,000
- Proposal paid off in one lump-sum payment provided by a family member who wanted to assist
2. Qualifying for a Consumer Proposal
The legal requirements for a Consumer Proposal are minimal, making it a very accessible tool for Canadians to consolidate their debts.
2.1 Consolidate Without Borrowing
Consumer Proposals allow you to consolidate (and reduce) your debt without borrowing. Because no borrowing is needed, a Consumer Proposal can be a viable solution regardless of your credit score and history, and a co-signer or pledge of an asset for collateral is not required.
2.2 Help with $1,000 – $250,000 of Debt
The minimum amount of debt required to qualify for a Consumer Proposal is officially $1,000. Debt levels for Consumer Proposals range between $1,000 and $250,000 – excluding mortgages on your principal residence. This threshold is doubled to $500,000 in the event of a joint Consumer Proposal.
3. What to Keep and What to Consolidate in a Consumer Proposal
One of the dual advantages of Consumer Proposals is that they will both 1) protect assets and, 2) consolidate virtually all of your debts.
3.1 You Can Keep Your Assets
Consumer Proposals commonly settle your debts via monthly payments, not by surrendering assets. This means people usually keep all their assets when they file a Consumer Proposal.
3.2 Consolidates Virtually All Types of Debt
Consumer Proposals can cover virtually all types of debt – from common consumer debts like credit cards, overdrafts, lines of credit, payday loans to government debts such as income tax arrears, student loans, ICBC debt, and more.
4. Consumer Proposal Services
When considering a Consumer Proposal or other types of debt counselling service, it’s important to get the facts about all your options firsthand from the correct professional.
4.1 Only Available Through a Licensed Insolvency Trustee
Making a Consumer Proposal is done with the assistance and expertise of a Licensed Insolvency Trustee, ensuring you benefit from having a trained and licensed debt help professional at your side throughout the entire process.
4.2 Accredited Debt Counselling Services Without Added Cost
The entire Consumer Proposal process is designed to be transparent, including the cost of making a Consumer Proposal. All costs are strictly calculated and simply deducted from the funds your creditors receive. There is no additional payment needed from you beyond what you are offering to your creditors.
