Considering a Consumer Proposal? Here Are 8 Questions to Ask

A consumer proposal can be a viable solution for those grappling with overwhelming debt, but it’s crucial to thoroughly understand this option before committing to it. Here are eight critical questions to consider when contemplating a Consumer Proposal.

1. What Exactly is a Consumer Proposal?

A Consumer Proposal is a legal agreement governed under the Bankruptcy and Insolvency Act of Canada. It allows debtors to negotiate with their creditors, proposing a repayment plan that involves paying back only a portion of their debts over a specific period, usually up to five years. It’s an alternative solution for those who want to avoid bankruptcy and have a steady income source.

2. How Long Does a Consumer Proposal Last?

The duration of a Consumer Proposal depends on various factors such as your financial circumstances, the amount of debt you owe, and your repayment capacity. Typically, a Consumer Proposal lasts up to five years. However, if you’re in a position to repay the debt sooner, the term can be shortened.

3. Who is a Licensed Insolvency Trustee (LIT)?

A Licensed Insolvency Trustee (LIT) is a government-authorized professional who administers Consumer Proposals and bankruptcies. When contemplating a Consumer Proposal, it’s recommended to collaborate with an LIT who will evaluate your financial situation, gauge your repayment ability, and negotiate with your creditors on your behalf.

4. What is the Consumer Proposal Process?

Before you file a Consumer Proposal, the LIT will evaluate your debts, assets, income, and expenses to develop a reasonable repayment plan. Once the proposal is drafted, it’s sent to your creditors for approval. The creditors have 45 days to cast their votes on the proposal. If the majority agree, the proposal becomes legally binding for all creditors, including those who voted against it.

5. What are the Advantages of a Consumer Proposal?

A Consumer Proposal offers several benefits:

  • Debt Reduction: You can reduce the total debt you owe, making it more manageable.
  • Ceasing Collection Actions: Upon acceptance of the proposal, creditors must halt all collection actions, including wage garnishments and incessant phone calls.
  • Asset Protection: Unlike bankruptcy, a Consumer Proposal allows you to retain your assets while you address your debts.
  • Fixed Payments: Your monthly payments remain consistent throughout the proposal’s duration, simplifying budgeting.

6. How Does a Consumer Proposal Impact My Credit Score?

Entering a Consumer Proposal will impact your credit score. The proposal remains on your credit report for three years after completion or six years after filing, whichever comes first. However, if you were struggling with debt before filing the proposal, your credit score might already be impacted.

7. Is There an Early Repayment Option?

If your financial situation improves, you can repay the Consumer Proposal early. Early repayment can significantly shorten the duration of the proposal and minimize its impact on your credit score. However, it’s advisable to consult your LIT to determine if early repayment is the right decision for your circumstances.

8. What Happens After the Consumer Proposal?

Upon completion of the Consumer Proposal payments, your LIT will issue a Certificate of Full Performance. This certificate confirms that you’ve met all the terms of the proposal and that the remaining outstanding debt is legally discharged.

A Consumer Proposal can be a valuable debt relief option for individuals grappling with substantial debt. However, it’s vital to understand its potential benefits and impacts on your credit score before making a decision. Consulting a Licensed Insolvency Trustee can provide you with the professional advice necessary to make an informed decision and take significant steps towards regaining financial stability.

Remember, every financial situation is unique. Therefore, it’s crucial to carefully assess your options and choose the one that aligns with your long-term financial goals. The sooner you consult a Licensed Insolvency Trustee, the sooner you’ll be on your path to financial stability.

In conclusion, if you’re considering a Consumer Proposal, these are the eight critical questions you need to ask. For more in-depth information and advice tailored to your unique circumstances, reach out to a Licensed Insolvency Trustee today.

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