Is A Consumer Proposal Worth It?

There are many ways for those in debt to find a path to recovery. The best option is to find a way to repay your debts in full and avoid similar financial difficulties in future. But there are more feasible options. Perhaps you are so deep in credit that you can see no way out, or there is a root cause that you need to address.

In cases of severe debt, there are several solutions available to you. Many people choose to file for bankruptcy, a legal proceeding by which you eliminate your debts by surrendering your assets, allowing you to make a fresh start toward recovery. Another option is to file a consumer proposal, which has many advantages over bankruptcy because it gives you more control over your finances and protects your assets. But is it worth it? Be aware, however, that although there are many benefits, there are also some inherent risks.

If you are considering filing a consumer proposal, you want to equip yourself with all the information before you begin. The following article looks at consumer proposals and the advantages and disadvantages they offer those seeking to get out of debt.

Woman making calculations
Couple meeting with trustee

What is a consumer proposal?

A consumer proposal is a legal proceeding designed to help those in debt agree with their creditors. It involves working closely with a Licensed Insolvency Trustee to develop a repayment plan that satisfies all parties. It will usually culminate in clearing many of your unsecured debts and requiring you to pay significantly less than the sum of what you owe. It makes your debt repayment more manageable and affordable while affording you and your assets a lot more protection.

The advantages of a consumer proposal

As an alternative to bankruptcy, a consumer proposal has many advantages. These include:

  • With a consumer proposal, you can reduce your unsecured debt by as much as 80%.
  • You can make your debt far more manageable and stress-free by consolidating them into one affordable monthly payment.
  • You will avoid filing for bankruptcy, which can negatively affect employment or professional certifications.
  • As soon as you file your consumer proposal, any interest and penalties will be automatically frozen, preventing you from racking up any further debt.
  • With bankruptcy, you must surrender any non-exempt assets, including property equity, your car, and any investments you may have. On the other hand, consumer proposals allow you to protect and keep your assets.
  • A stay of proceedings will get ruled, protecting you from creditors and ending collection calls and wage garnishments.
  • It will affect your credit rating far less than bankruptcy.

The risks of a consumer proposal

Despite all the advantages listed above, there are some risks you need to be aware of before you consider filing a consumer proposal. Failing to heed these may make the process a lot more complicated. These risks include:

  • A consumer proposal can take much longer to complete than a bankruptcy. Depending on your circumstances, there is no fixed rule regarding how long it will take.
  • It will still impact your credit score and appear on your report for three years from completion or six years from the ruling date, whichever comes first.
  • Your creditors have to accept your consumer proposal to proceed with it. There is always a risk that they might reject it; however, this is unusual. In such a case, your Licensed Insolvency Trustee will work to formulate a counteroffer.
  • A consumer proposal covers not all debts, so you’ll need to ensure you are aware of these, including child support payments, secured debts, fines, and fraud-related debts.

Is it worth it?

Filing a consumer proposal has many excellent benefits over the alternatives. It provides a clear pathway to debt recovery without surrendering your assets or seriously impacting your credit score and employment prospects. Although the risks are minimal, it is a good idea to familiarize yourself before you begin proceedings.

For more information and guidance on filing a consumer proposal, get in touch with Fox-Miles and Associates for a free consultation.