A Gentler Method: Why a Negotiated Consumer Proposal Can Be A More Fair and Reasonable Debt Solution

If you have debt problems you also have options. A Consumer Proposal is “an offer to pay creditors a percentage of what is owed to them or extend the time you have to pay off the debts, or both” and, for some people, it can be a much better and more manageable solution than bankruptcy to resolve your debts, particularly if:

• You want to pay your creditors more than they would receive if you filed personal bankruptcy.

• You have high income and could not manage the surplus income payment required in a bankruptcy.

• You have equity in assets that would take too long to pay within a bankruptcy.

• You have been bankrupt previously.

• You want to take advantage of a potentially shorter impact on your credit score.

Fair and Reasonable

You can be as creative as you want in determining the terms of a settlement put forth in a Consumer Proposal as long as it is fair and reasonable and you can get more than 50% of your unsecured creditors (by dollar-value of claims) to accept it. As long as you get over this 50% threshold, it will be binding on all unsecured creditors whether they like it or not. That sounds harsh but it’s why this method works for some.

Most consumer proposals are structured as monthly payments overtime at less than the full payout. Generally, a consumer proposal should provide a higher return or recovery to the creditors than they would obtain in bankruptcy or there is no incentive for your creditors to vote in favour of it. Once the total amount of the settlement is determined and approved, you can pay it out early if you are able to do so and this would accelerate rebuilding your credit.

Once in place, your consumer proposal payments would be paid to your LIT who handles all of the back-end administration.

The fact that you filed a Consumer Proposal will stay on your credit bureau report for a maximum of 6 years (including the time during your consumer proposal), which is a shorter period than with bankruptcy. That means a 5-year consumer proposal will stay on your credit report for 1 additional year after you have completed all of the terms of your Proposal. In clear language, a consumer proposal impacts your credit rating for a lesser period of time. Equifax Canada – How Long Does Information Stay on My Equifax Credit Report?

How a Consumer Proposal Works In Canada

In order to qualify to file a Consumer Proposal, you must have debts of less than $250,000, excluding the mortgage on your principal residence. If you are over this limit, there is another form of proposal that can be filed.

When we review your individual situation, we will consider whether or not a Consumer Proposal (or other forms of a consumer proposal) makes sense for you and review the pros and cons of a proposal as compared to bankruptcy and other non-legislated options.

The Government of Canada provides a great explanation of how Consumer Proposals work here. A Consumer Proposal is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). Once you understand how this method works, an LIT can look at your personal situation and help you decide if this gentler method of dealing with your unsecured debts can work for you and if it is worth it.

Disadvantages of consumer proposal include how severe missed payments can be. If you fall into arrears for a total of 3 monthly payments you will end up with an annulled consumer proposal. It is best to avoid consumer proposal annulment because you end up being responsible to pay back all of the debt you had prior to your proposal, minus what your creditors received in the proposal.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming unsecured debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Once completed, most of your unsecured debts will be discharged. Contact us for a free consultation.

Learn more about consumer proposals vs other debt consolidation options.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.