Today I met a person who had reviewed our website and after talking to one of our professionals was coming in for a free consultation expecting to do a consumer proposal. After reviewing his situation it turned out he was a much better candidate for a Debt Management Plan. But even after talking with us he had a lot of confusion about what a consumer proposal was.
I like to call a consumer proposal a repayment plan that usually pays less than 100% to your creditors. The amount it does pay depends on what your income is, who your creditors are and what assets you have. In other words I will be reviewing your situation as if you were filing for bankruptcy. That frightens a lot of people when I meet with them, but I explain that if I do not know what would happen in a bankruptcy, it will be difficult to make sure the amount being offered to the creditors is the right number.
In a consumer proposal the creditors have the right to turn down the offered amount. And some creditors have certain standards that they require to say yes. So sometimes the proposal will offer much more than the creditors would receive if you filed for bankruptcy.
So then why do a consumer proposal? Normally payments in a proposal can be broken down to offer a payment amount that is less than in a bankruptcy. This will help your cash flow so that you are not continuing to struggle to pay monies you don’t have.
Imagine that you owe about $25,000 to various creditors, but you have about $10,000 equity in your house or you have income high enough that you would need to pay more than a minimum fee in the bankruptcy. For the above debt, a consumer proposal might offer something like $250 per month for 48 months instead of up to $1000 per month to pay off the house equity in nine months (the usual minimum amount of time in a bankruptcy for a first time bankrupt). If your creditors are cooperative, the proposal will allow you to pay a percentage of your debt over a greater amount of time than in a bankruptcy.
Credit wise, there is not a large amount of difference between a proposal and bankruptcy initially. But after the proposal is completed, your credit actually improves slightly. So you can normally improve your credit a little more quickly with a proposal.
Finally, it is important to understand that a consumer proposal, like a bankruptcy, is a process carried out under the Bankruptcy and Insolvency Act. It can stop creditors from garnishing wages, seizing property and bank accounts. And this makes it a very serious step to take. It fits nicely between a Debt Management Plan and bankruptcy for those people who cannot afford to pay all their debt but either wish or will need to make payments that would be too expensive in a bankruptcy.
Do you think a consumer proposal might be the right option for you?
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