How to Make a Consumer Proposal Budget That Works: A Definitive Guide

How to Make a Consumer Proposal Budget That Works

Crafting A Functional Consumer Proposal Budget: A Comprehensive Guide

Understanding the process of creating a consumer proposal budget is crucial when you are navigating through financial difficulties. This definitive guide will lead you through the journey of How to Make a Consumer Proposal Budget That Works.

Understanding Your Financial Status Before a Consumer Proposal

Financial hardship can make it seem impossible to have sufficient funds. If your current income barely covers your monthly household expenses, such as rent, groceries, utility bills, insurance, and other unavoidable costs, it’s often due to debt payments consuming a large portion of your income.

Addressing this issue by making minimum payments on credit card bills will not help you escape debt. What you need is a strategic plan to handle your debts, reduce stress, and kickstart your journey towards financial freedom. This is where a consumer proposal comes into play.

The Significance of Your Budget in a Consumer Proposal

The pivotal question when considering a consumer proposal is, Can I afford the monthly payments? To ensure that your consumer proposal costs align with your budget, your trustee will evaluate your monthly expenses to determine if you can afford to complete the process.

A consumer proposal will protect you from creditors, halt interest charges, but it requires offering your creditors more than they would receive in a bankruptcy. However, you must be capable of affording the payments. That’s where your budget becomes an essential tool.

Your trustee will analyze your budget to identify which expenses will vanish (like credit card payments) and where you may need to make adjustments to better manage your finances.

If you’re uncertain about affording your monthly proposal payments, it could add to your stress. Missing proposal payments puts you at risk because legally, you can miss only two monthly payments during the proposal. If a third payment is missed, the proposal is automatically annulled. Once annulled, you lose the creditor protection that your proposal provided, and your debts could return to collections. This is why it’s critical to be prepared and honest about your financial status. A well-planned budget ensures your proposal is affordable and guarantees your success in eliminating your debts for good.

Creating a Consumer Proposal Budget That Works

Your trustee will require some income and expense information to help craft your consumer proposal. However, here are some items you will need to include in your budget:

Income Items:

  • Earnings from your job;
  • Pension benefits;
  • Alimony or child support;
  • Government assistance (child tax, welfare, disability);
  • Other sources of income.

If you’re self-employed or own a business, only your net income, after deducting relevant business expenses, needs to be included.

A consumer proposal considers a household budget, so this information will be required for both you and your spouse.

Household Expenses:

  • Rent or mortgage payments;
  • Property taxes;
  • Home and content insurance;
  • Utilities – electricity, gas, water;
  • Telecommunication expenses;
  • Internet services;
  • Furniture costs;

Transportation Costs:

  • Fuel;
  • Auto loan or lease payments;
  • Public transit costs;
  • Car maintenance and repairs;
  • Vehicle insurance;
  • License renewals.

Living Costs:

  • Groceries;
  • Dining out;
  • Entertainment;
  • Laundry and dry-cleaning;
  • Personal care products;
  • Clothing;
  • Smoking expenses;
  • Alcohol;
  • Gifts and donations.

Health-Related Expenses:

  • Life insurance;
  • Disability insurance;
  • Prescription medicines;
  • Dental care.

Other Expenses:

  • Childcare or babysitting charges;
  • Bank fees;
  • Gifts or allowances;
  • Memberships;
  • Pet care.

For expenses that are paid annually (like memberships, insurance, or holiday gifts), try to estimate the monthly amount you need to set aside for these costs.

Keeping Current Debt Repayment Out of Your Consumer Proposal Budget

In your consumer proposal budget, you won’t include monthly debt payments, with the exception of secured loans like your mortgage or vehicle finance that you wish to maintain. If you intend to keep these assets, you will need to continue these payments, which is why they are included in your budget.

In a consumer proposal, you have no unsecured debt payments. Currently, your minimum payments on credit cards, high-interest loans, and payday loan repayments are likely causing your budget to be in deficit.

When proposing to creditors, your trustee will first consider your income minus your expenses before debt repayment. This number should ideally be positive. If it’s not, your trustee can discuss ways to reduce your expenses or, if it makes sense, return an expensive car to lower your outgoing costs and bring your budget into balance.

Your trustee will need a list of your creditors. Based on your total debts and your creditors, your trustee will know what minimum percentage to offer. This can be balanced with your budget to see how much you can afford to repay.

Why a Consumer Proposal is More Favorable For Your Budget Than Bankruptcy

It might seem contradictory that offering more to your creditors in a debt proposal is beneficial for your budget. The duration of a bankruptcy is influenced by the debtor’s income. Government regulations state that the higher your income, the more you must pay in a bankruptcy and the longer you must make those payments.

In contrast, consumer proposals can have a repayment term of up to five years. Spreading your payments over 60 months can help you lower your monthly payments, making the difference between a balanced budget and continuing to struggle with your daily living costs.

Budgeting Post-Consumer Proposal

After filing your consumer proposal, you will be required to attend two credit counselling sessions. One of these sessions will focus on budgeting and living within your means. While the primary reason to file a consumer proposal is to eliminate your debt, the secondary goal is to ensure that you don’t rely on credit to cover everyday living expenses in the future. A consumer proposal can give you a fresh start, and now you can work towards building some savings for the future.

Conclusion

A consumer proposal can wipe out your debt, allow you to retain your assets, and help you regain financial stability.

If you’re grappling with debt, reach out to us for a free initial  debt assessment. During this session, we will review your budget, help you determine how much you can afford to pay, and what offer you might propose to your creditors.

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