The Consumer Proposal
The consumer proposal is very popular in Canada. Every year more and more people choose a consumer proposal over a bankruptcy to deal with their debt problems. More than half of Canadians now choose consumer proposals over bankruptcy. In Alberta more than 60 percent chose a consumer proposal over bankruptcy. Consumer proposals have many advantages; not the least of which is that you are NOT in bankruptcy when you file a consumer proposal.
In spite of the popularity of the consumer proposal people, experiencing a debt crisis, are reluctant to see a trustee. There are many reasons for this.
They think that perhaps their fortunes will change. Most of us are sensitive to money issues and do not want to discuss this with strangers. Many people, even if the reason for their debt is because of some tragedy beyond their control, feel guilty and avoid seeking financial advice because they think it’s a failure on their part.
Many people associate trustees with bankruptcy and hate the thought of bankruptcy with a passion. Trustees used to be called Trustees in Bankruptcy. The new name “Licensed Insolvency Trustee” is more general and inclusive. Since an LIT’s role is not limited to bankruptcy, the old professional title did not reflect the work trustees do. Changing the title also removed the stigma of the word “Bankruptcy”.
It is common for people to avoid seeking professional advice and to just ignore their debts and the collection calls. They continue to live their lives without dealing with their debts. The resulting guilt, embarrassment and fear of answering the phone for fear it’s just another collector starts to wear a person down. There are the sleepless nights, arguments at home and pressure at work, with the fear of their boss finding out or their wages being garnisheed. Often a person’s health is at risk.
I have seen many people in my practice avoid dealing with their debt problem for months and sometimes years. When they finally see a trustee and see a plan for dealing with their problem all the weight of their worries disappear. People hate uncertainty and when they have a plan of action for dealing with their debt they start to feel good about themselves.
The consumer proposal is an effective alternative to bankruptcy. Filing a consumer proposal has many positives. More than half of the people who file, choose a consumer proposal over a bankruptcy.
The consumer proposal has many advantages:
- You are NOT in bankruptcy;
- Unless you are a prominent person no one but your creditors will know you have filed;
- Unsecured creditors, including CRA, are stopped from taking collection action;
- Collection calls stop as soon as you file;
- Any danger of a wage garnishee is stopped;
- You are able to keep assets that might be lost in a bankruptcy;
- Professional designations are not in the jeopardy they might be in a bankruptcy;
- Inheritances or windfalls are yours to keep, unlike in a bankruptcy;
- The maximum length of a consumer proposal is five years, but it can be paid off sooner;
- The payments you make in a consumer proposal are affordable, with a cushion build in for unforeseen expenses;
- Almost all consumer proposals are approved by your creditors because they know if you file bankruptcy they will get very much less and sometimes nothing;
- CRA debt is included in a consumer proposal;
- Trustee fees are regulated by the government so the cost of a consumer proposal will be the same no matter which trustee you use;
- Trustee fees and costs come out of the payments you make, so in a way the creditors are paying for the cost;
- Consumer proposals have a 98% successful completion rate.
You can find more information about consumer proposals here