Please note I am not a Trustee in bankruptcy. This post is for information purpose only.
There is an option to bankruptcy many people have never heard of: consumer proposal.
let’s start by defining a consumer proposal
A consumer proposal is a legal, binding agreement in which you agree to pay a portion of your unsecured debts; your creditors agree to forgive the balance.
This is very different from a bankruptcy, and there are definite advantages to choose a consumer proposal over the latter:
your assets are protected
Unlike a bankruptcy, your house, car and/or savings are not on the line. You can keep them.
you don’t have to make surplus payments
In a consumer proposal, your payment amount is fixed and for five years maximum. You don’t have to make any additional payment and you won’t forfeit your tax refund, if you receive one.
you are protected from your creditors
Your wages can no longer be garnished. Collection agencies can no longer harass you.
Here is how the process works:
a licensed trustee in insolvency works out a payment plan and presents it to your creditors
A consumer proposal is managed by a professional trustee. Payments will go through the trustee.
your creditors have 45 days to accept your proposal
No news means your proposal is accepted. Your creditors can also request a meeting to discuss further. Once the proposal is accepted, you have to adhere to all its conditions and attend two financial counselling sessions.
Most creditors accept consumer proposals. They know it is better for them than you declaring bankruptcy or not paying them.
a consumer proposal does impact your credit score & file
Although, it is “easier” than a bankruptcy, a consumer proposal has the same negative impact on your credit file. You also won’t be able to apply for credit until your proposal is completed. Your existing credit will be cancelled.
if you don’t meet the proposal’s requirements, you will be back to square one
That’s right, your proposal will be annulled and your creditors will come back after you for full payment of what you owe.
you need income to pay for the proposal
This is a mandatory requirement. Consumer proposals are also usually more expensive than a bankruptcy. You also need to pay the Trustee. These people do not work for free.
SECURED DEBT IS NOT INCLUDED
Your mortgage cannot be included in a consumer proposal, as well as any student loan less than 7 years old.
A consumer proposal can definitely be a better option than bankruptcy. But before you decide to go with one, you should always try to pay your debts by yourself or obtain a consolidation loan.