A consumer proposal is a highly effective way to negotiate your debt into something that is manageable for you. This process should be used as an alternative to filing for bankruptcy. If you can afford to pay all of your debts but you just need more time to do so, this option may be right for you.
A consumer proposal is similar to a debt management plan but it is a legally binding procedure. In order to file you must meet with a licensed trustee in bankruptcy. They will ask you information regarding how much money you owe and to whom, your personal assets, and your household income. The repayment schedule the trustee creates is based on your income, monthly expenses, and other financial responsibilities. A consumer proposal is an option to any individual (even if they have declared bankruptcy) whose debts are over $5000 and less than $75,000 not taking into account their mortgage. Joint consumer proposals may be made when there is a financial relationship between the parties. If the person making the proposal has more than $75,000 of debt for a single person or $150,000 for a joint venture, a proposal can still be made under a different division of the Bankruptcy & Insolvency Act. The government of Canada has suggested increasing the limit to $250,000 for each proposal.
Consumer proposals were created to help debtors deal with unsecured debt meaning that money is owed without collateral. Examples of unsecured debt include income taxes, credit cards, lines of credit, and other loans. Secured debt is money lent with collateral such as a leased vehicle or a mortgage on a home. Secured debt is excluded from credit proposals.
The advantage to using a consumer proposal to clear your debt over filing for bankruptcy is that it only lasts a maximum of five years. Furthermore, if the proposal is accepted by the majority of your creditors it must be accepted by all of them. Another advantage is that interest is frozen to that at the date on which you file and the amount of debt you propose to pay back can be less than the total amount that is owing. Because consumer proposals are a legal document, your creditors must refrain from taking any legal action against you and they may not garnish your wages.
Keep in mind that consumer proposals affect your credit rating. Immediately after you file your rating will reflect so. This will mark you at high risk to lenders and you may not be able to get loans until your credit score has improved. Also, a consumer proposal will not allow you to decide on which debts you will have to pay back or eliminate certain obligations such as student loans or alimony.
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