Is a Consumer Proposal Worth it in Canada: PROS & CONS

^{By Bromwich+Smith Staff | 1025 words | Reading Time: 5 minutes and 7 seconds | Date: 2023/03/21}

Canadians have the right to debt relief options including a Consumer Proposal; but what is it and is a Consumer Proposal worth it in Canada? Lets look at the pros and cons to the powerful debt relief option, but ultimately only you can decide what is the best debt relief option for you.

What is a Consumer Proposal?

A consumer proposal is a renegotiation of what you owe to your creditors, handled by a Licensed Insolvency Trustee like Bromwich+Smith on your behalf. You pay what you can afford, instead of what your creditors were demanding. Typically this reduces your debt down to a fraction of the original debt owed. Learn more.

Who Qualifies for a Consumer Proposal?

• Do you owe a minimum of $1,000, and a maximum of $250,000 ( not including a mortgage)
• Are you unable to make payments, and pay off your debt?

If so, you qualify fordebt relief options in Canada, including a Consumer Proposal

What debt can be included in a consumer proposal?

• Credit Card Debt, including Store Cards
• Line Of Credit
• Unsecured personal loans
• Debt brought to a collection agency
• Student debt loans over seven years

What debt can not be included in a consumer proposal?

• Anything that is court ordered, including child support or alimony payments.
• Student loans under seven years
• Secured debt with collateral ie Mortgage, Home Equity Loans, Car loans.

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What is the Process of a Consumer Proposal?

Once you have spoken to a Debt Relief Specialist, and decided on proceeding with a Consumer Proposal you will be introduced to your Licensed Insolvency Trustee. They are the only people in Canada, who can file this federally regulated agreement between you and your creditors. Your trustee will negotiate with your creditors to approve your file. Your creditors will vote to accept, reject or meet in regards to your file and while the majority of files are approved on the first draft there are cases that do not. When your creditors vote, majority rules. Even creditors who do not accept the proposal must honour and accept the agreement if the majority agree. Your Licensed Insolvency Trustee will be there to support you and explain the process throughout.

Once the Proposal has been accepted, you will start your Proposal including making your monthly payments, and attending two credit counselling sessions.

PROS and CONS to a Consumer Proposal

PRO:

1. By filing a stay of proceedings, you are safe from all creditor actions. Simply stated, they are no longer allowed to contact you, continue lawsuit or collections or garnish your wages.
2. Your debt is typically reduced, and all interest stops. You may qualify for up to 85% reduction in debt owed.
3. Your debt repayment will be spread out over a five year period, in one easy to make payment. No more juggling what you can afford to pay and who you owe money to.
4. You can make additional payments if your financial situation changes, and can off your debt faster with no penalty to you.
5. You protect your assets
6. You avoid additional damage to your credit but dealing with your debt now.
7. You get to feel a sense of ownership, by accepting your debt and making payments towards it.
8. You can restart building your credit during your proposal, and your Licensed Insolvency Trustee has the tools and resources to help you.

CONS:

1. This is a legally binding contract. If you are unable to continue your payments and do not contact your Licensed Insolvency Trustee to make alternative payment plans you will not complete your debt relief program, and will not be discharged from your debt. You will not receive a refund for what had been paid under the Consumer Proposal.
2. All Consumer Proposals are public record.
3. A Consumer Proposal may be more expensive than other debt relief programs, for example Bankruptcy.
4. A Consumer Proposal will show up on your credit score for three years after you complete your proposal OR six years from the file date whichever occurs first.

Is a Consumer Proposal Worth It?

As you can see, there are many things to consider when exploring debt relief options. There is no one simple solution that will work for everyone, and not every Canadian qualifies for a Consumer Proposal. By contacting a Licensed Insolvency Trustee, you will be able to get the answers to all of your questions and understand if a Consumer Proposal is right for you.

Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1-855-884-9243, or request a call back at contact us page. We want to see you flourish!

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FAQ questions:

1- What are the pros of filing a consumer proposal in Canada?

The pros of filing a consumer proposal in Canada include:

Immediate protection from creditor actions, such as wage garnishments and collection calls
Ability to consolidate and reduce debt payments into a single monthly payment
Potential to reduce the total amount of debt owed
Avoidance of bankruptcy and the negative impact on credit scores and future financial opportunities

2- What are the cons of filing a consumer proposal in Canada?

The cons of filing a consumer proposal in Canada include:

Impact on credit scores and credit history for up to three years after completion of the proposal
Requirement to pay a portion of the debt owed, which may not be feasible for some individuals
Possibility of creditors rejecting the proposal, leading to further debt collection actions
Limited eligibility, as only individuals with less than $250,000 in unsecured debt are eligible to file a consumer proposal

3- How does a consumer proposal affect credit scores in Canada?

Filing a consumer proposal in Canada will have a negative impact on credit scores, as it is considered a form of insolvency. The proposal will remain on the individual's credit report for up to three years after completion, which may affect future credit opportunities.

4- What is the process for filing a consumer proposal in Canada?

The process for filing a consumer proposal in Canada involves working with a Licensed Insolvency Trustee (LIT) to assess eligibility and develop a proposal to present to creditors. If the proposal is accepted by the majority of creditors, the individual will make regular payments to the LIT, who will distribute the funds to creditors. The proposal typically lasts between three and five years, after which the individual is released from their remaining debts.

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Related blog:

What exactly is a consumer proposal?