Entering into a consumer proposal is the ideal step before bankruptcy. The best candidates are those who have debts over $5,000 but not over $250,000 (including your mortgage), have a good job and are able to swing at least some payments each month (though can’t afford to make full repayments with interest), and who can’t get a debt consolidation because your debt is too high despite your steady income.
In it’s simplest form, a consumer proposal is an arrangement you reach with your creditors with the mediation of a trustee. You sign a legal contract and are immediately protected from debt collectors, and you also agree to a partial repayment of the unsecured debts you owe (with your creditors agreeing to forgive the balance).
As with bankruptcy, one of the immediate pros of entering a consumer proposal is that it stops wage garnishments. In addition, Interest also stops accumulating from the filing date and you’re no longer allowed to be hassled by collection companies and creditors.
Unlike with bankruptcy, you are not at risk of losing your assets (like your home or car), and you also don’t have to worry about oweing any surplus income.
With a consumer proposal, you must repay only a portion of the debt you owe (rather than the full amount) and the maximum repayment period can not be longer than 5 years.
As an added bonus, your credit score will not take as much of a beating with a proposal as it would with bankruptcy, and the sense of control you get to maintain over your finances brings a greater peace of mind to many. Even creditors prefer consumer proposal over bankruptcy because they know they’ll get at least some of what is owed to them back.
While a consumer proposal has far more pros than cons (especially when compared to bankruptcy) there are a few notable points.
You can’t choose which debts are to be included (that’s up to the trustee and the creditors) and you can’t eliminate your child support or alimony obligations. You are also expected to honour certain student loan obligations. In addition, a consumer proposal does not take your secured debts (i.e. your home or car loan) into consideration.
Look at your situation and look at the pros and cons of both bankruptcy and consumer proposal and don’t be afraid to seek advice from a certified professional. Both situations are far more common than you think, and while it’s far from ideal, filing for bankruptcy or entering into a proposal are definitely not the end of the world.
