Debt can feel like a heavy weight on your shoulders, but you’re not alone—and there are ways to regain control. A consumer proposal offers a way to reduce debts, avoid bankruptcy, and manage repayments in a legally structured manner. Unlike bankruptcy, it typically allows you to keep assets and make a single monthly payment, giving you more control over your financial future.
It’s important to note that a consumer proposal isn’t always the best solution for everyone. It impacts your credit rating, and not all debts, like secured debts or recent student loans, are covered. You may also be bound by fixed payments for up to five years, which could be challenging if your financial situation changes for the worse.
At BNA Debt Solutions, we have helped many clients understand the pros and cons of filing a consumer proposal. With our 27 years of experience in Alberta, we aim to reduce stress and provide a clear path forward. We invite you to contact us for a free consultation to explore how we can help you find the right solution for your unique financial challenges.
Understanding Consumer Proposals
Consumer proposals are a practical option for managing overwhelming debt without the drastic consequences of having to file a personal bankruptcy.
What Is a Consumer Proposal?
A consumer proposal is a formal debt settlement process governed by the Bankruptcy and Insolvency Act. It can reduce debts by up to 80% in most cases.
Bankruptcy results in an automatic stay preventing creditors from contacting you and stopping all collection activity. A consumer proposal allows you to keep your assets while reducing your debt. A Licensed Insolvency Trustee manages the process to ensure it is legally binding and fair for all parties.
Consumer proposals provide creditor protection, halting collection calls and garnishments. The proposal period can last up to five years, allowing more manageable monthly payments. These differences make consumer proposals a viable bankruptcy alternative, focusing on long-term financial recovery.
Advantages of a Consumer Proposal
There are significant benefits to this debt relief option.
- Asset protection ensures that assets like your home or car remain with you, unlike bankruptcy, which could require liquidation.
- Consumer proposals legally bind all your creditors to the same debt settlement plan.
- You also benefit from fixed monthly payments, making it easier to manage your budget without sudden changes.
- A consumer proposal helps avoid bankruptcy, which can be a more severe financial blow.
- Finally, your creditors must comply with the agreed terms, providing peace of mind and a stable path toward becoming debt-free.
- Consumer Proposals also stop the interest from accruing on the debts.
These advantages make consumer proposals appealing to those seeking a balanced approach to debt management.
Disadvantages of a Consumer Proposal
Impact on Credit Rating
When you file a consumer proposal, it affects your credit report. This impact is significant, as it can stay on your credit record for up to three years once completed. Although not as severe as bankruptcy, this can still make it challenging to access new credit during this period. While it may seem daunting, the benefit is that it won’t affect your credit record as severely or as long as bankruptcy.
Not All Debts Are Covered
A consumer proposal mainly handles unsecured debts like credit cards, tax debt, and personal loans. Unfortunately, it doesn’t cover all types, like student loans (which are less than 7 years old) or secured debts, such as mortgages and car loans. This means if you owe on a secured account such as a mortgage, you’ll need to continue making those payments separately. Understanding this limitation is crucial, as it could negatively affect your overall debt solution strategy.
Fixed Monthly Payments Over an Extended Period
Consumer proposals involve making fixed monthly payments to creditors for up to five years. While this can help you better plan your budget, the downside is that these payments continue even if your financial situation changes.
For someone who may suffer a significant loss in income, this can feel restrictive and lead to further strain. Despite this, having a predictable schedule can provide significant benefits and peace of mind for those looking to stabilize their finances.
Potentially Higher Total Repayment than Bankruptcy
While consumer proposals help avoid bankruptcy, they might result in higher total repayments. Since consumer proposal work involves paying back a portion of what you owe, the total across the proposal’s duration could exceed what you’d repay in bankruptcy. This reflects the trade-off between maintaining more control over your finances and incurring a more extended financial obligation.
Voting Process
There is a voting process that creditors engage in when you submit a consumer proposal. A majority must accept the proposal for it to proceed. If they reject it, you might face delays as new terms are negotiated, but you remain protected under the stay of proceedings. This process can complicate the journey to financial stability, but it also offers creditors the chance to participate actively, ultimately aligning all parties’ interests.
Long-Term Financial Commitment
A consumer proposal commits you financially for an extended period, lasting several years. For those who may not be able to offer any repayment terms but still need immediate protection, this might not be ideal. It requires patience and a consistent approach to financial planning.
However, for many of our clients, this commitment is preferable to an alternative solution, offering a structured, dependable path to becoming debt-free without the harsher consequences of other debt-relief options.
Comparing Debt Relief Options
We understand that choosing the right debt relief solution can be challenging. It’s crucial to weigh the benefits and drawbacks of each option to make a well-informed decision that suits your financial situation.
Consumer Proposal vs. Bankruptcy
Alternatives to a Consumer Proposal
- Debt Consolidation Loan: This combines all your debts into one monthly payment. A debt consolidation loan is often easier to manage for a small amount of money and is typically associated with lower interest rates than other debts.
- Credit Counselling: A professional negotiate with creditors to lower monthly payments and interest rates. It helps create a manageable plan without affecting your credit rating but does not reduce the total debt owed.
- Informal Debt Settlement: This involves negotiating to pay a lump sum less than the total debt. Risks include potential adverse effects on your credit rating, the possibility that creditors won’t agree, and no legal protection.
- Bankruptcy: Considered a last resort, it provides immediate relief from debt but affects credit history for many years and may require asset liquidation. It offers a clear path to discharge most unsecured debts but has longer-lasting credit implications than other options.
When a Consumer Proposal Might Be Worth Considering
Consumer proposals offer a structured way to deal with unsecured debt. They can be an excellent option for those with high balances, such as credit card debt or personal loans. By choosing this route, individuals may avoid the severe impacts of bankruptcy, such as asset liquidation.
Here are some situations where filing a consumer proposal can be beneficial:
- High Unsecured Debts: If debts like credit cards, tax debts, and loans are overwhelming, this approach can offer relief.
- Stable Income: A reliable income is crucial to maintaining the fixed monthly payments required.
- Avoid Bankruptcy: Desire to avoid the full legal implications and stigma of ban
Seeking advice from a Licensed Insolvency Trustee is vital. They help ensure your unique financial circumstances are considered and offer guidance to make the right decision. Our team at BNA Debt Solutions is here to support you through this journey.
Licensed Insolvency Trustee: Your Guide Through the Process
Navigating a consumer proposal can be challenging, and that’s where a Licensed Insolvency Trustee (LIT) becomes invaluable. LITs are the only professionals who can legally administer Bankruptcy and Proposal filings.
Our role involves assessing your financial situation and helping you explore options like consumer proposals or other debt relief solutions. A significant part of our job is to explain each step of the process clearly and compassionately, ensuring you understand and feel comfortable with your choices.
A key benefit of working with LITs is having a legally binding agreement that stops collection calls and provides immediate creditor protection. This allows you to focus on managing your debt effectively.
How BNA Debt Solutions Can Help
At BNA Debt Solutions, we aim to guide clients toward effective debt relief solutions like consumer proposals rather than bankruptcy. Consumer proposals offer a formal way to negotiate with creditors, allowing us to create a manageable debt repayment and payment plan.
Our clients benefit from working with Licensed Insolvency Trustees who provide a straightforward, professional approach. They assist in understanding which unsecured debts are covered and the implications for any secured debts.
Consider the consumer proposal as a legally binding agreement to lower total debt and monthly payments. This offers creditor protection and relief from collection calls. While it may affect your credit rating, it often provides a fresh financial start without the stigma of bankruptcy.
BNA Debt Solutions ensures that clients feel supported throughout the proposal terms and voting process. If renegotiation is needed, our professionals work closely with creditors and financial institutions to find solutions that fit each unique financial situation.
We handle all the proposal payments, ensuring a single fixed monthly payment is made to reduce debt. While it may involve a commitment of up to five years, we aim to offer significant benefits that align with your financial goals.
To find out if a consumer proposal is the right solution, we invite you to contact us for a free consultation. We provide tailored advice-seeking guidance that respects your privacy and helps you avoid unregulated advice from misleading debt relief scams. Our focus is on providing you with a confident path to debt relief.
Frequently Asked Questions
How long does a consumer proposal stay on your credit report?
A consumer proposal can stay on your credit report for up to three years after you complete the debt repayment plan or a maximum of six years. This might affect your ability to secure future credit in the short term, but it’s often seen as a better option than bankruptcy.
Can creditors reject a consumer proposal?
Creditors do have the right to reject a consumer proposal. If they find the offer unsatisfactory, they may vote against it. In this situation, you might need to renegotiate proposal terms to reach an agreement.
Will a consumer proposal affect my spouse’s credit?
If debts are in your name only, a consumer proposal will not impact your spouse’s credit report. However, if you have joint accounts, these expense reports may be affected, so it is wise to review shared financial obligations.
Can I pay off a consumer proposal early?
Yes, paying off a consumer proposal early is possible. This can remove the proposal from your credit report sooner, allowing you to rebuild your credit faster. We can explore options for speeding up repayment.
Is there a stigma associated with consumer proposals in Canada?
While there may be some stigma surrounding consumer proposals, they are an effective and powerful solution for managing overwhelming debt. Our priority is to help you make informed choices and alleviate any concerns about seeking debt relief.
What happens when you file a consumer proposal?
A note is added to your credit report when you file a consumer proposal. The note on your credit report remains for three years after completion or six years from filing, whichever comes first.
Can I obtain a new credit within a year of filing?
Obtaining a new credit card within a year of filing is possible, although you may need to start with a secured credit card.
What does insolvency mean?
Insolvency means that your debts and liabilities outweigh your assets, and/or you cannot reasonably afford to repay your debt as they become due.
What steps are involved in completing a consumer proposal, and what are the implications?
- Your consumer proposal will typically include a 3-payment annulment clause.
- Two mandatory financial counseling sessions must be completed during the process.
- The creditors will discharge the remaining balances on your accounts once you complete the proposal.
