Essential things to Know about a Consumer Proposal

Debts can be problematic sometimes. If an individual’s financial income is neither stable nor recurring in nature, then it is not possible to pay the debts easily. Consumer proposal and credit score, these two terms are important for a debtor. A consumer proposal is a legal binding held between the creditor and the debtor to pay back the debts. 

There are some key benefits of using a consumer proposal

1.  A Consumer Proposal affects the credit score but less than Bankruptcy

When you file the proposal, your credit score will get a hit and it will be reported to Credit Bureau of the respective state or country. There is a note attached which shows the rating as R7. This means that you have taken the option to pay back the amount through an agreement. Whereas, when a person is declared bankrupt, the rating which he/she receives is R9, stating your bankruptcy, which is indeed not good. 

2. Payment of the Amount as per the Agreement 

As one come into an agreement, he/she will pay the said amount as per the specifications stated in the contract. The payment can be monthly, periodically, or a lump sum amount, but the debtor must be careful, as skipping even one payment will bring troubles.

3. A Consumer Proposal will settle your Unsecured Debts

By filing a consumer proposal, the unsecured debts can be repaid easily. It safeguards your property, assets, etc, and affects only the unsecured debts that are credit cards, unpaid bill, etc. Your normal life is not affected by such acts, as there are no collection calls from the creditors. A debtor must consider consumer proposal, credit score and other factors carefully. 

4. Law Governs you when using Consumer Proposal

Consumer proposals come under Bankruptcy and Insolvency Acts of Canada and benefits from bankruptcy. The protection includes protections against lawsuits, creditors or garnishments. This aspect holds much value, which is rarely seen in any other settlement program. 

5. Can be completed Faster than the Actual Date

The maximum period of time for the proposal are 5 years (60 months), but in case the debtors completed it before time, it is rather a good deal. If you get a salary hike, win a lottery or receive money from any source, you can pay your debts. It fact, the lesser the payment duration, the better your credit rating will be. 

Consumer proposal, credit score , and other factors will not affect your daily workings. Moreover, you will be able to repay your debts in a much easier way, without many hassles. Every year a number of people accumulate debts, and to repay them without a bad reputation can be sometimes difficult. The easiest option to repay the debts without a bad reputation is choosing the consumer proposal. Therefore, try to keep your life stable and use this proposal at the time of crises. 

Pro’s and Cons’ of Consumer Proposal that you May Need to Know

Individuals and businesses in Canada have many options to deal with their financial problems. Out of many solutions, one option to manage the debts in a better way is by using Consumer Proposal. It’s a legal option mandatorized by the Federal Government that enables the debt holders to settle their debts.

Usually, people use this when they have much less income, presently, than the amount, they had at the time of credit. The reasons behind this can be loss of job or business, accident, divorce, etc. Another scenario is a situation where an individual is paying only the minimum amount of the debt, without having reasonable capability to pay the whole debt amount.

Let us discuss some pro’s and con’s of consumer proposal that might help you in making your decision.

Pro’s

• The person who is liable to pay the debt can pay only a small portion of the debt. This can be done by negotiating with the administrator or the trustee, asking to propose a lesser amount instead of the already proposed one. Creditors usually agree for the said amount if it is more than the amount they will receive from your bankruptcy.
  

• You can pay the agreed amount in minimum 60 monthly instalments and maximum until the completion of 5 years.
   
• Your monthly amount will not be increased even if your total monthly income is higher. This will be specified in your proposal.
  
• There is a possibility of immediate stoppage of your interest charges.
  There will be end to creditor’s collection calls. 
• All kind of legal actions that took place against you will come to rest, immediately. If the creditor has filed any kind of lawsuit against you, that will be stopped too. 
• You can retain your asset/property. 
• There will be much less damage than filing a bankruptcy. Through this, you can easily come out of your bank debts without having much hassle.  

Con’s

• If your credit score is good, it will suffer when Consumer Proposal is listed on your bureau file.
  
  
  

• Although, it may not be as damaging as bankruptcy, you will get a tough time in getting approvals for any future unsecured credit.

• It is important to know that even if you are entering in a long time repayment cycle; your credit rating will be affected.

• You cannot approach the creditor who is part of your proposal for credit (until you do not repay them).

• There will be minimum 2 credit counselling meetings.

 A consumer proposal is an exceptional program where individuals, families and partners can solve their debt related problems. It also reduces the hardship that the affected person has to bear. On the other hand, it helps the debt holder(s) to safeguard their property/asset. The overall loss, which the debt holder pays, is shifted to a reasonable amount. Through this proposal, it becomes easier for the liable party to repay the amount. 

What is the Eligibility to File Consumer Proposal?

Are looking for an effective way to wipe out your debts? If yes, Consumer Proposal is a perfect and easy method to do so. Basically, it is a legal agreement through which you make an offer to creditors to pay an amount less than the total outstanding amount owned over a period of time. The most interesting part of filing it is that the portions of debts that you are unable to pay are forgiven once you agreed to pay all the payments, and fulfilled all your duties.

Well, this proposal can only be filed with the help of a licensed bankruptcy trustee. There are many individuals who think that they only require hiring a trustee at the time of bankruptcy a proposal estate. At the time of filing it, the question arises that what debts can be included in a Consumer Proposal? It is one of the most important questions associated with it.

Through this proposal, you can prepare a payment plan and debt reduction strategies, you have to make sure your debts are eligible. The best part of it that all your unsecured debts are included, such as

• Department store cards

• Phone bills

• CRA debts, including income tax debt

• Credit card debts

• Lines of credit

But there are certain debts that can’t be included in the consumer proposal, such as court fines and penalties, student loans, child support, and alimony as well as maintenance. Another critical aspect is the Consumer Proposal Eligibility.

This proposal option is not available to businesses. And the individual should be considered insolvent, which means the inability to pay its debts as they become due. This can only happen if your debt is less than $250,000 (excluding the mortgage amount of your home).

If you have an amount exceeding $250,000, you need to seek for any other option. In case you file a joint one with your spouse, the debt sum can’t go above $500,000. To make things a little sorted hire a licensed trustee who can suggest you the ideal legal ways to get rid of debts. Here is a list of criteria that you need to accomplish for filing this proposal:

• You must be able to afford your proposal. In simple words, you should have a fixed source of income to pay the agreed monthly amount to your creditors.

• It should be accepted by the people you owe. Thus, you require offering them enough money to convince them. As per the rule of thumb, you need to pay them at least 33% of the outstanding amount.

• The amount can be divided into 60 easy monthly payments for not more than 5 years. 

• You can’t have any other proposal open at the time you file it.

• You can only file it when both court and creditors approved it.

Being burdened by debt and finding difficulty in repaying it, this proposal is a great way to get rid of financial problems without worsening your situation. But you need to understand the Consumer Proposal eligibility to file it the right way.