What is a Consumer Proposal?
A Consumer Proposal is a legally binding offer to creditors by a Licensed Insolvency Trustee through the Bankruptcy and Insolvency Act. After acceptance, no creditors can take any action to collect the debt.
Who is a Consumer Proposal for?
It is for people drowning in debt, who cannot make the minimum payments on their unsecured debts (ex: credit cards, not mortgage) over a long period of time. The combined amount of debt needs to exceed $10,000.
What are the Benefits of a Consumer Proposal?
- It decreases the debt owed by as much as 85%.
- It is less severe than bankruptcy, with a smaller impact on finances and credit rating.
- A proposal is created on your behalf and negotiations are done for you. All calls and letters from creditors stop.
- An incredible amount of stress is removed.
- People who are overwhelmed by debt can get back on their feet again.
What are the Negatives?
- It costs about $2000 for a consumer proposal.
- The affect on a credit rating is R7 for the length of the proposal (usually 5 years) + 3 years for a total of 8 years.
- Bankruptcy reduces a credit rating to R9 for 6 years after discharge from bankruptcy.
Our minimum credit card payments were higher than $1100 a month for a long period of time. While our income paid most of our living expenses, including our mortgage and most of our utilities, we had nothing left to pay the 3 credit cards and Line of Credit. This continued for months while we kept hoping things would get better, that our income would increase, and we could repay our debts. One by one, each debt went to collections and the phone calls and letters got worse. (for the rest of Our Financial Disaster Story, click here).
We were referred to a debt specialist, who calculated our income and expenses, assets and liabilities, and suggested a consumer proposal as a solution. We decided that we could make payments of $250 a month. That was a bit of a stretch for us, but much more possible than $1100!
When we finished all the paperwork, they prepared our proposal and said they were offering our creditors $7500 instead of $32,000. As soon as the proposal is received, all phone calls and letters to us stopped and our creditors have 45 days to accept the offer. I asked why they would accept that. In creating our proposal, she looked at what the creditors would receive if we declared bankruptcy, and then offered them more than that amount.