Many Canadians find themselves struggling with unmanageable debts and are unsure of how to regain control of their financial situation. One of the most effective methods of debt consolidation in Canada is through a Consumer Proposal. This legal process allows individuals to renegotiate their debt terms and potentially reduce the total amount owed to creditors.
Understanding a Consumer Proposal
A Consumer Proposal is a legally recognized agreement between you and your creditors. It is a debt relief solution that enables you to consolidate your debts into a single, manageable payment without accruing any additional interest. The proposal is often used by individuals who are unable to repay the full amount of their debts but can afford to pay a portion of it.
- A typical Consumer Proposal involves repaying between 20% and 50% of the total debt, spread over a period of up to five years.
The benefits of consolidating debt with a Consumer Proposal are numerous:
- It covers most types of debts, from credit card balances and payday loans to student loans and tax arrears.
- It halts the accumulation of interest on your debts.
- It stops creditors from pursuing collection actions or wage garnishments.
- It is coordinated by a Licensed Insolvency Trustee, who handles all communications with your creditors.
- It does not involve any additional financing charges or administrative fees.
Example of a Consumer Proposal Payment
To illustrate the potential benefits of a Consumer Proposal, consider a real-world example:
- An individual who owes $42,360 in debt, struggling with a monthly payment of over $1,200, opts for a Consumer Proposal.
- The proposal reduces their debt by 55%, bringing it down to $18,600.
- They now have a new monthly payment of $310 and will be free from debt in five years.
Consumer Proposals are highly flexible and can be tailored to suit your specific financial situation. Plus, they can be paid off early without incurring any penalties.
Initiating a Consumer Proposal
The first step in starting a Consumer Proposal is to consult with a Licensed Insolvency Trustee in your province. It’s crucial to remember that only a Licensed Insolvency Trustee can facilitate a Consumer Proposal. You do not need a referral to connect with one.
- A Consumer Proposal cannot be filed independently, nor can a credit counselor or debt settlement agent file one on your behalf.
- Be wary of anyone charging a fee to connect you with a Licensed Insolvency Trustee or claiming they can file a Consumer Proposal without being a Licensed Insolvency Trustee.
Steps to Commence Your Consumer Proposal
A Consumer Proposal is typically filed in three steps, which can be done either in person or virtually:
Step 1: Schedule a Free Confidential Debt Consultation
Meet with a debt expert to discuss your financial situation, including your debts, income, and any specific challenges you need assistance with.
- You will explore all your options, including self-directed strategies, borrowing options, and legal solutions, such as Consumer Proposals.
- If a Consumer Proposal seems to be the best route, you will work together to formulate an affordable proposal.
Step 2: Gather and Review Your Financial Information
If you decide to proceed with a Consumer Proposal, you’ll need to fill out a basic information form and collect documents detailing your debts, income, and assets.
- You will have a second meeting to review these materials and fill in any missing information.
Step 3: Sign Your Official Consumer Proposal Documents
Once you sign your Consumer Proposal documents, your Licensed Insolvency Trustee will register the proposal with the Office of the Superintendent of Bankruptcy.
- Although a Consumer Proposal is not bankruptcy, it is a type of legal debt solution overseen by the government.
Once these steps are complete, your Consumer Proposal is officially filed!
What Occurs After Filing a Consumer Proposal?
Several key events take place in the first 60 days after your Consumer Proposal is formally filed:
- You’ll make one of your regular monthly payments.
- Your Licensed Insolvency Trustee will communicate with your creditors and send them official notice of your Consumer Proposal.
- Your creditors will have 45 days to consider your Consumer Proposal and vote on it. If more than 50% of your creditors (by dollar value) vote in favor, the proposal becomes legally binding on all creditors.
- After 45 days, if your Consumer Proposal is accepted by your creditors, an additional 15 days will pass, after which your Consumer Proposal will be deemed court-approved.
Completing a Consumer Proposal
The duration of your Consumer Proposal depends on the payment terms you’ve offered. While most people offer monthly payments spread over one to sixty months, there are other options available. For instance, you can offer a lump-sum payment or proceeds from the sale of an asset.
In addition to making payments, you also need to:
- Stay updated with your taxes and pay any new balances as required.
- Attend two private financial counselling sessions.
- Maintain communication with your Licensed Insolvency Trustee.
A Basic Timeline for Most Consumer Proposals
Here’s a basic timeline based on a typical Consumer Proposal offering:
- You’ll consult with a Licensed Insolvency Trustee, review your financial information, and sign your Consumer Proposal documents.
- 60 days after signing, you’ll begin making your new reduced Consumer Proposal payments.
- Upon making your final payment, you’ll receive an official Certificate of Full Performance, and your unpaid debt balances will be legally written off by your creditors.
If you’re looking to consolidate debt or lower your monthly payments, a Consumer Proposal could be a great solution. It’s worth investing an hour to explore this option with a Licensed Insolvency Trustee — being debt-free could be closer than you think!
Reach out to a local, non-judgmental debt expert today and start your journey towards financial freedom. Book your free confidential debt consultation now!
