Consumer Proposal Pros and Cons

Managing debt with a Consumer Proposal can offer many benefits to people looking to successfully consolidate, cut, and pay off their debt. Read on to understand key pros and cons of consolidating debt with a Consumer Proposal, and other details to know if you’re wondering if a Consumer Proposal is right for you.

How Does Consumer Proposal Debt Consolidation Work? 

A Consumer Proposal is a legal debt solution that allows an individual to consolidate virtually all their debts into one repayment plan and cut the amount of debt that needs to be repaid to have all accounts settled in full. A Consumer Proposal is customized to meet the person’s specific situation and needs, and it’s not uncommon for total debts to be cut by as much as 50-80% or more.

Working with a Licensed Insolvency Trustee together you will determine the portion of your debt that you can afford to repay over a period of up to 60 months. Your debts will legally be frozen, and no interest will be charged as you make your Consumer Proposal payments, which are usually monthly. Once you’ve completed the terms of your offer the unpaid debt will be considered forgiven and can never again be legally attached to you.

• If your total debt is between $1,000 and $250,000 (not including your mortgage) and you are unable to immediately repay all your debts, a Consumer Proposal is one of the best ways to consolidate (and cut) your debt, getting you to debt-free in five years or less.

What are the Key “Pros” to Choosing a Consumer Proposal? 

Some of the pros to consolidating and cutting your debt with a Consumer Proposal can include:

• Your Proposal will be legally binding on all your creditors if the majority (by dollar value) agree to your offer. You can consolidate virtually all your debt, from credit cards to payday loans, lines of credit to overdrafts, government debts like student loans, outstanding taxes and GST and more.
  • You have the option to continue with ‘secured’ arrangements for financing such as your mortgage and/or car payments outside of your Consumer Proposal.
• No new interest is charged on your debt, your balances are frozen.
• Make a single, affordable monthly payment, which can make managing day-to-day finances much easier.
• Even if your financial situation improves, your payment terms will remain the same, although you may want to pay more on your Proposal to pay it off sooner.
• Your assets and income will be legally protected, and you’ll continue to receive income tax refunds and other tax credits as you normally would.
• Creditors will be prohibited from contacting you for payments and must halt all other collection actions, lawsuits and harassment. Even wage garnishments from Canada Revenue Agency must cease immediately after a Consumer Proposal is filed.
• You will have a clear debt-free date within the next five years, and you can pay off your Consumer Proposal early at any time, without penalty.

Lastly, some people may simply choose a Consumer Proposal because they can’t afford their debt payments anymore and they want to avoid filing for bankruptcy. In addition to the Consumer Proposal pros above, a Consumer Proposal can be more appealing than bankruptcy because there are no monthly budgets to submit, you’ll keep all your tax refunds, and there is less impact to your credit history.

Consumer Proposals VS Bankruptcy in Canada – Learn More

Are there Disadvantages or “Cons” to Making a Consumer Proposal? 

A Consumer Proposal can be a great fit for a lot of situations – especially compared to other options like consolidation loans, credit counselling plans, or trying to continue paying your debt in full with interest when you’re struggling to manage payments or growing balances. However, a Consumer Proposal may not be suitable for everyone, and some people may consider the following as disadvantages:

Your Consumer Proposal Will Take Time to Pay Off

You will get the immediate benefits of your Consumer Proposal as soon as it is filed, but of course it still takes time (up to five years) to make all your payments – and if your monthly payment is low you may need to take the full five years to get your Proposal payments finished.

While this timeframe is reasonable in comparison to other options such as consolidation loans or credit counselling plans, it is longer than it would take to complete a personal bankruptcy (this usually takes nine months). Remember though that you can pay off your Proposal early.

What are my Options if I’ve Done a Consumer Proposal Before?

You Need to Complete All the Terms of Your Consumer Proposal

Although you can defer two of your Consumer Proposal payments over the course of the Proposal, if you miss three payments your Consumer Proposal will be considered in default and will be annulled (essentially cancelled).

If your situation changes and you can no longer afford your Consumer Proposal payment it may be possible for you to amend your Proposal – or you could abandon your Proposal and declare personal bankruptcy (although this is less common). It’s always best to talk with your Licensed Insolvency Trustee so you can decide how to move forward.

Consumer Proposals Step-by-Step – Learn More

Your Credit Rating is Temporarily Affected

Any time you don’t pay your debts in full as per the original borrowing terms, your credit rating will be impacted in some way, and it’s no different with a Consumer Proposal.

An R7 note will be on your credit report for three years from the date you complete your Proposal, or six years from the date you filed it – whichever comes first. This is similar to credit counselling plans, and less severe than a bankruptcy filing (which would show as an R9 for six years following your discharge (release) from bankruptcy).

Some Types of Debt Can’t be Cleared in a Consumer Proposal

There are a handful of debts that won’t be cleared through a Consumer Proposal, or by any means other than paying them. The most common include:

• Child support or spousal support debts
• Court-imposed fines and debts due to fraud
• Student loans where you have been out of school for less than seven years– older student loans can be consolidated and cut just like any other debt.
  • If it’s been more than five but under seven years since you finished studies and you’re still struggling with your loan payments a court may order your government student loans be forgiven upon completion of your Proposal.

How is a Consumer Proposal Payment Calculated?

Debt repayment terms in a Consumer Proposal are flexible and tailored to your individual situation, making a Consumer Proposal a suitable debt management option in many circumstances.

Consumer Proposals filed by Sands & Associates’ Licensed Insolvency Trustees are often successful in reducing debts by up to 50-80% and some considerations to determine how much debt your Consumer Proposal could cut include:

• Your overall personal situation and finances including income, expenses, and household size.
• How much debt you have, and who your creditors are.

The rules around Consumer Proposals give you lots of flexibility in terms of how long you can stretch out your Proposal payments and how much of your debt you repay – and unlike many consolidation loans that can last seven or ten years, a Consumer Proposal will last a maximum of five years, and terms of two-to-three years are quite common.

A Licensed Insolvency Trustee will help you work out a suitable offer to your creditors that takes into account your personal financial situation including your household budget, the amount of debt you can afford to repay and other financial goals you may have.

A Consumer Proposal Starts with a Free, Confidential Consultation

When you want qualified debt advice the best thing to do is talk with a local Licensed Insolvency Trustee and have a free, confidential consultation. Sands & Associates serves residents across BC and in 30 minutes we can help you explore all your options, including Consumer Proposals.

• By the end of this conversation, you should have clear information about the next steps in the debt-free plan that you decide is right for you, and many people feel relief right away knowing that there is a way forward from the financial anxiety and debt-stress they have been feeling.

You owe it to yourself to get debt help, and you’re not alone in finding debt solutions – we’re here to help you!

Connect with a non-judgmental BC Licensed Insolvency Trustee and get started with a debt-free plan that’s right for you – book your free, confidential debt consultation today.