Understanding the Timeline of a Consumer Proposal
Consumer proposals can provide an effective means to manage and eliminate debt, but many individuals are uncertain about how long this process takes. This comprehensive guide will help you understand how much time it will take to complete a consumer proposal and the critical steps involved in this debt relief strategy.
An Overview of Consumer Proposals: What Are They?
A consumer proposal is a legally binding agreement negotiated between a debtor and their unsecured creditors to pay back a portion of the owed debt. This arrangement effectively reduces the total debt owed and stops all collection activities, allowing for a more manageable repayment process.
Eligibility and Threshold for a Consumer Proposal
If your debt is less than $250,000 (excluding your primary residence’s mortgage) and you are struggling to pay your debts, you may be eligible to file a consumer proposal. The repayment period for a consumer proposal is a maximum of 5 years. However, the filing process’s duration can vary based on several steps.
Step 1: Consulting with a Licensed Insolvency Trustee
The first move in a consumer proposal is to consult with a Licensed Insolvency Trustee (LIT), previously known as a bankruptcy trustee. These professionals offer free consultations and have extensive experience helping clients file consumer proposals.
The trustee will assess your financial situation to determine if a consumer proposal is the best solution for you or if another debt relief strategy would be more appropriate. The duration of this step depends on how quickly you decide to proceed with a consumer proposal.
Step 2: Submission of the Consumer Proposal
The next step involves your trustee filing your consumer proposal with the Office of the Superintendent of Bankruptcy. This office oversees LITs and maintains public records of insolvency filings. Once the proposal is filed, all unsecured creditors listed in the proposal must cease their collection actions, including collection calls, wage garnishments, and legal actions.
Step 3: Informing the Creditors
After filing the proposal with the Office of the Superintendent of Bankruptcy, your trustee will submit it to your creditors, along with a report detailing your financial situation.
Step 4: Awaiting the Creditors’ Response
The creditors will then have the opportunity to review the proposal and the accompanying report. They will decide whether to accept or reject the proposal.
Step 5: Initiating the Proposal
If the creditors agree to the terms of the proposal, the consumer proposal will officially take effect. You will then need to adhere to the proposal’s terms and make the necessary payments to your trustee, who will distribute the funds to your creditors.
The duration of this step can vary significantly based on your financial situation. If you have the means to make a lump sum payment, the proposal could be completed almost immediately. Alternatively, if you opt for monthly payments, the process could take up to 5 years.
Step 6: Resubmission of the Proposal (If Necessary)
If the majority of creditors reject your proposal, you have the option to amend it and resubmit. With the help of your trustee, you can make reasonable changes to your proposal that may be more acceptable to your creditors.
Addressing Missed Payments
To successfully complete your proposal, you must make every scheduled payment. If you miss three payments without amending your proposal, it will be deemed annulled, and the benefits of the proposal will be reversed. Consequently, your debts will revert to their original amounts and creditors can resume collection efforts.
Income Changes and Their Impact
A significant advantage of a consumer proposal is that your repayment amount remains the same, even if your income increases. Therefore, if you secure a raise, inherit money, or take a second job, you won’t need to adjust the terms of your existing agreement.
Life After a Consumer Proposal
Once you have made all the repayments and completed any required credit counselling sessions, your consumer proposal will be officially complete. Your debts will be considered paid in full, giving you a fresh start to rebuild your financial health.
However, it’s important to note that a consumer proposal remains on your credit report for an additional 3 years after completion. This record could affect your ability to secure new credit.
Comparing Consumer Proposals to Personal Bankruptcy
Personal bankruptcy will appear on your credit report for 6 to 7 years after you receive a Discharge. While a consumer proposal could potentially remain on your credit report longer, it’s worth noting that this would only be the case for first-time bankruptcy filings.
Improving Your Credit Score Post-Proposal
While a consumer proposal or bankruptcy can lower your credit score, it’s possible to rebuild your credit over time. One way to do this is by adopting responsible credit habits. You can also avail yourself of credit counselling services to learn how to use credit wisely and effectively rebuild your credit score.
Virtual Consumer Proposal Services: Adapting to the New Normal
In these uncertain times, some financial institutions offer over-the-phone consultations and electronic document signing. This allows you to access their services from the safety of your home, helping you prioritize your health while you navigate your financial situation.
Taking the First Step Towards a Debt-Free Life
Understanding how much time it will take to complete a consumer proposal is a crucial step in your journey towards financial freedom. If you are overwhelmed by debt, seek professional help and consider all your options before making a decision. Remember, the road to financial recovery may seem long, but with the right approach and guidance, it’s entirely achievable.
