How a Consumer Proposal is A Win-Win Scenario
A consumer proposal can often be a beneficial tool for both debtors and creditors, providing a win-win scenario that is more advantageous than bankruptcy. This article delves into the intricacies of a consumer proposal, its workings, advantages, and real-life illustrations to demonstrate its effectiveness.
Understanding Consumer Proposals
To begin with, let’s shed light on what a consumer proposal is. Essentially, it’s a legally binding agreement that a debtor negotiates with their creditors. The debtor agrees to pay a portion of their debts, and in return, the creditors agree to forgive the remaining balance.
This process is facilitated by a Licensed Insolvency Trustee (LIT) who helps determine the reasonable monthly payments based on several factors. These include the debtor’s total debt, household income, assets, and budget. The payment terms can be spread out over a maximum of five years, or it can be paid in full upfront or in a combination of monthly and lump sum payments.
Check out details on how consumer proposals work and minimum percentage expectations, and how to avoid surplus income penalty.
Real-Life Illustrations: The Win-Win Scenario of a Consumer Proposal
To illustrate the benefits and effectiveness of a consumer proposal, let’s look into six anonymized client scenarios.
Case Study 1: Overcoming Surplus Income and Student Debt
In our first example, let’s consider ‘Joy’, a single individual burdened with student loan debt and credit card debt. After negotiating with her creditors through a consumer proposal, Joy managed to significantly reduce her monthly payments, resulting in substantial savings and debt reduction.
Proposal payments: $260 a month for 60 months.
Outcome: Joy paid $15,600 on debts of $37,600 – saving $22,000 (a reduction of 59%).
Case Study 2: Making Housing Affordable Again
With the rising cost of rent in Canada, ‘Robert’, a construction worker burdened with credit card debt and a truck loan, was struggling to make ends meet. A consumer proposal helped Robert reduce his monthly debt repayments, making rent affordable again.
Proposal payments: $275 a month for 60 months.
Outcome: Robert repaid $16,500 on a $50,000 debt, saving $33,500 (a reduction of 67%).
Case Study 3: Managing Debt Amidst a Pandemic
‘Mark’ and ‘Terri’ were managing well financially until the pandemic hit, resulting in job loss and mounting credit card debts. A consumer proposal enabled Mark to drastically reduce his debts, ensuring financial stability for the family.
Proposal payments: $175 a month for 60 months.
Outcome: Mark paid $10,500 on debts of $37,400 – reducing his debts by 72%.
Case Study 4: Retaining Home Ownership
‘Chris’ and ‘Sarah’ were burdened with unexpected house repair expenses and credit card debts. A consumer proposal allowed them to keep their home and significantly reduce their debts.
Proposal payments: $550 per month for 60 months.
Outcome: Chris paid $33,000 on debts of $65,000 (a reduction of 49%) and retained their home.
Case Study 5: Managing Tax Debts
‘Shad’, a self-employed contractor, found his client work drying up during the pandemic. After falling behind on his HST payments and accruing credit card debt, a consumer proposal provided him with a manageable repayment plan.
Proposal payments: $450 a month for 60 months.
Outcome: Shad settled $67,000 in debts for $27,000, saving $40,000 (a reduction of 60%).
Case Study 6: Solutions Post-Divorce
‘Patty’ and ‘Al’, burdened with debt following maternity leave, layoffs, and divorce, needed a solution. A consumer proposal provided Patty with manageable monthly payments, and Al opted for bankruptcy.
Proposal payments for Patty: $225 a month for 60 months.
Outcome: Patty paid $13,500, saving $26,500 on her debts – a savings of 66%.
Common Debt Challenges
Below are some of the common debt challenges we often encounter:
- 86% of our clients struggle with credit card debt
- 79% have a loan with a bank or credit union
- 38% owe money to payday lenders
- 28% have a high-interest installment loan
- 22% have outstanding student loans
- 40% owe money to the Canada Revenue Agency
If you’re facing similar debt challenges, a consumer proposal might be the win-win solution you need. Don’t hesitate to contact us for more information about consumer proposals. Your path to financial stability is just a call away.
