What You Keep In a Consumer Proposal

What Can You Retain In A Consumer Proposal?

When submerged in mounting debt, a Consumer Proposal stands as a beacon of hope. It not only provides a concrete plan to escape the quagmire of debt but also safeguards most, if not all, of your treasured possessions. This unique aspect sets it apart from Bankruptcy and other informal debt solutions.

One of the primary advantages of a Consumer Proposal is the opportunity to retain your home. As long as you persist in making your mortgage payments, your home remains yours, even though you will need to eventually pay an equivalent amount to your proposal based on the net equity in your home.

Comparing Various Debt Solutions

To tackle the menace of debt, you are presented with several choices, each with its own merits and demerits. The spectrum of options available includes legal proceedings such as Consumer Proposal and Bankruptcy, governed by the Bankruptcy and Insolvency Act, and others that can be availed with the assistance of a non-profit credit counsellor or on your own.

The decision to choose the best solution largely depends on the sum you owe, your desire to retain certain assets, and the urgency to liberate yourself from the clutches of debt.

Consumer Proposal

As a legally enforced settlement offer to unsecured creditors like credit cards and personal loans, a Consumer Proposal offers a maximum of five years to pay off your debts. The payments are interest-free, and typically, you end up paying less than half the total amount you owe.

In a Consumer Proposal, your creditors do not have any claim on your property. Still, they must receive more than what they would in a Bankruptcy.

Bankruptcy

Bankruptcy is a legal proceeding that provides relief from some secured debts such as mortgage and auto financing, and most unsecured debts. If it’s your first Bankruptcy, this option can make you debt-free within nine to 21 months. However, it requires the surrender of any property required by law or payment of a prescribed amount to retain it.

Your earnings might also mandate surplus income payments.

Informal Debt Solutions

Informal debt solutions like orderly payment of debts, debt management plans, or directly negotiating with your creditors for a lower interest rate or monthly payment can help you reduce and overcome your debt. You can either work directly with your creditors or take help from a non-profit credit counsellor.

These arrangements, although not legally binding, do not allow unsecured creditors to claim your assets. However, missing any payments can lead to repossession of your items by secured creditors. These arrangements also cannot guarantee debt relief.

Retaining Assets in a Consumer Proposal

In contrast to Bankruptcy, where your property is used to repay a fraction of the outstanding debts, a Consumer Proposal allows you to retain your property and repay your creditors with cash. This flexibility and lesser disruption make a Consumer Proposal a preferred choice for many debtors.

The following examples can elucidate:

Home

In a Consumer Proposal, you can retain your home provided you can afford your monthly mortgage and Consumer Proposal payments. If you can’t, alternative debt solutions or selling your home may be considered.

Automobile

In a similar vein, a Consumer Proposal doesn’t impact an auto financing loan. However, you should be able to afford both the Consumer Proposal and auto financing payments. You can consider selling your vehicle and using the proceeds to pay down your Consumer Proposal or surrendering the vehicle back to the financing company.

Personal Assets and Possessions

In a Consumer Proposal, your unsecured creditors will not have any claim to your personal property. However, you might choose to sell high-value items to repay your proposal.

Investments and Savings

A Consumer Proposal protects the entire value of your RRSPs. There is no requirement to empty your savings or liquidate investments in a Consumer Proposal.

Tax Returns, GST Rebates, And Other Government Benefits

Your annual income tax returns are filed as usual while you repay your Consumer Proposal. Any applicable refunds depend on whether you owe an outstanding balance to the Canada Revenue Agency (CRA). If you do, the CRA will pro-rate your refund to the date of your proposal. If not, you will receive the full refund.

You will also receive any government payments you are entitled to, including the Child Tax Benefit, Old Age Security, Canada Pension Plan, and GST Rebates.

Conclusion

A Consumer Proposal can be a beneficial option to eliminate your unsecured debt while protecting certain assets that you may otherwise have to surrender in a Bankruptcy. It will not impact your secured creditors, and you generally have the choice of which property to retain and which to sell to fund your proposal.

The following is a summary of what you can keep in a Consumer Proposal:

 

Home: Provided you continue with the mortgage and proposal payments.

Car: If the financing payments do not interfere with your Consumer Proposal.

Personal possessions: All personal property can be retained.

Investments and savings: RRSPs, stocks, and savings can be retained.

Tax returns and government benefits: You can keep tax returns unless you owe money to the CRA. The government cannot withhold any payments you are entitled to during your Consumer Proposal.

 

The choice to retain many of your assets is a considerable advantage of a Consumer Proposal. However, it might be beneficial to consider letting go of certain items. Making a list of your possessions and differentiating between what you need to keep, what you want to keep, and what you can let go can be a helpful exercise.

The Licensed Insolvency Trustee can provide an informed and unbiased opinion on the best course of action during your Free Confidential Consultation.

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