Understanding the Process: What Happens When You Commit to a Consumer Proposal
Dealing with massive debt can be overwhelming and stressful. However, taking the first step towards financial freedom is commendable, and you should be proud. Many individuals often assume that declaring bankruptcy is the only solution to their financial woes. While this may be a viable route for some, various other options could be better suited to your financial situation. One such option is engaging in a Consumer Proposal.
A Consumer Proposal is a debt settlement strategy as defined by the Bankruptcy and Insolvency Act (BIA). It’s a plan to settle your debts with your unsecured creditors based on a percentage of the total amount owed to them, a plan for time extension for payment, or both.
Working with a Licensed Insolvency Trustee (LIT)
When submitting a Consumer Proposal, you’ll need to work closely with a Licensed Insolvency Trustee (LIT). If you decide to work with Bankruptcy Canada, for instance, we will file the proposal on your behalf.
Payments to satisfy the Consumer Proposal are made to your LIT, who will then distribute the funds on a pro-rated basis to all your unsecured creditors.
The Flexibility of a Consumer Proposal
One of the main advantages of filing a Consumer Proposal is its flexibility. It allows you to repay your confirmed unsecured debts with monthly payments based on your income and personal circumstances.
From the day your Consumer Proposal is filed with the Office of the Superintendent of Bankruptcy, interest stops accruing. The payback period is flexible and can be up to five years but cannot exceed this timeframe.
Life After a Consumer Proposal
Once you’ve completed your Consumer Proposal, you’ve effectively moved on from your past financial issues and are free of your unsecured debts. Now, it’s time to start rebuilding your credit rating.
The Consumer Proposal will remain on the Equifax and TransUnion Canada systems for three years from the time of completion.
Rebuilding Your Credit
One effective way to rebuild your credit after a Consumer Proposal is to apply for an unsecured credit card. Use this card for purchases you would normally pay for in cash or by debit. Upon receipt of your monthly credit card statement, make a payment on time and preferably in full.
Other strategies to rebuild your credit include:
- Avoid maxing out your credit cards.
- Use open accounts occasionally to keep them active.
- Never miss a payment.
- Don’t withhold payments to a lender due to a dispute.
- Limit the number of times you apply for credit and the number of inquiries on your credit file.
Remember, you’re not alone in your journey towards financial freedom.
In conclusion, committing to a Consumer Proposal can be a viable step towards tackling debt. It offers flexibility and allows you to work towards rebuilding your credit score over time. Always remember to seek advice from a Licensed Insolvency Trustee before making any decisions.
