If you’re having financial troubles, you may have stumbled on the word “consumer proposal.” What does it mean? Read ahead to find out about the debt relief strategy and when you would want to try it.
What Is a Consumer Proposal?
A consumer proposal is a legally binding process that’s designed to help debtors repay their creditors. With the help of a licensed insolvency trustee, the debtor creates the terms of their proposal, including how much they can repay their creditors and what the expected timeline will be. A proposal’s repayment schedule can be a maximum of 5 years. If the majority of the creditors agree to the terms, then the proposal goes in-effect, and the process officially begins. If the majority of them don’t, then the debtor can try to adjust the terms with the guidance of their trustee and hope to try again.
These are some of the benefits of a consumer proposal:
- Once the proposal is in-effect, the creditors can no longer charge interest, late fees, and other penalties
- The creditors have to stop collection actions
- The debtor can repay a lower amount than their original debt total
One of the biggest benefits is that it’s a popular alternative to filing for personal bankruptcy. A licensed insolvency trustee — formerly known as a bankruptcy trustee — will usually recommend that debtors try to file for a consumer proposal before even considering bankruptcy. For more information, you can click here to see some of the frequently asked questions about consumer proposals and personal bankruptcies. You could get the answers that you’re looking for.
Who Is a Consumer Proposal for?
Essentially, consumer proposals are designed for people who are insolvent. Insolvent means that you can’t manage to pay off your debts in a reasonable time or way. For instance, someone who would have to stop getting groceries or paying rent in order to afford debt payments is insolvent. If you’re still unsure if you fit the bill, here are some signs that you have too much debt and that you need to do something about it.
Are There Exceptions?
A consumer proposal only covers unsecured debts, like payday loans, credit card debt, and unpaid utility bills. Secured debts aren’t included. So, you can’t add your mortgage or car loans to the agreement.
If you are dealing with student loan debt, you should know that it may not be covered by the proposal. Student loans can only be included in consumer proposals seven years after you cease being a student — this could mean your graduation date or official dropout date.
Another exception for eligibility is the amount of unsecured debt that you have. If you owe less than $250,000 (excluding the mortgage of your primary residence), then you can qualify for the proposal. According to an IPSOS poll, the average citizen owes $8,539.50 in consumer debt — this means debt that’s not related to their mortgage. So, it’s very likely that you’re eligible.
If you owe more than $250,000 (excluding the mortgage of your primary residence), then you will have to look for other debt-relief options, like a division one proposal or personal bankruptcy.
Now you know that you can do more than declare bankruptcy when you have debt trouble. There is another solution out there that can help you get out of debt and get back on your feet.