Consumer proposals – There is life after debt!

Given the current economic conditions, more people are turning to consumer proposals to settle their debts, rather than filing outright bankruptcy.  As one of the leading Bankruptcy Trustees on Vancouver Island, we have helped many people through the consumer proposal process and onto better lives.

What is a Proposal?

A consumer proposal is legal process provided by the Bankruptcy and Insolvency Act for anyone with over $5,000 but less than $250,000 in unsecured debt, or $500,000 per couple (excluding their primary residence mortgage).  Unsecured debt might include credit cards, lines of credit, loans and unpaid income tax.  The consumer proposal is an agreement to repay a portion of the unsecured debts through the services of a Trustee in Bankruptcy. The proposal terms are normally structured over 5 years with one monthly payment.  While the amount of debt being repaid is usually substantially less than the actual amount owed, it is normally more than the creditors would get if the person went into Bankruptcy.

The consumer proposal is voted on by all the creditors involved, if the majority accepts, it is binding for all creditors.  Once a proposal is accepted by the creditors, all interest is frozen and all unsecured debt collection efforts, including calls, letters, wage garnishments, and legal actions will stop.

During the process, a person can miss two payments, which would then be added on to the end. If a third payment is missed during this process, the proposal would be annulled and the creditors rights would be revived to purse the person for collections of their account, including the interest since the time the proposal was filed.

The main benefits of filing a consumer proposal over bankruptcy are as follows:

  • allows a person to keep their assets including a home and investments like an RESP (note: secured loans on assets must be paid in order to retain those assets);
  • the person works in a profession that does not allow bankruptcy;
  • the stigma of bankruptcy is totally unacceptable to the person;
  • bankruptcy may prohibit sponsorship of a family member for immigration purposes;
  • going into bankruptcy may force a spouse into bankruptcy;
  • repay less than they owe and make the monthly payment manageable, yet still receive the same creditor protection they would receive in a bankruptcy;
  • make their payments over a period of up to 5 years, with the flexibility to pay their balance off earlier; and
  • actually make lower monthly payments than they would in a bankruptcy if they have a higher than average income.

Contact us today.  We will assess your financial situation to review all your financial options.  If it’s determined that a consumer proposal is the best choice for your situation, we will prepare all the necessary paper work and table your offer to the creditors.  While this arrangement may not work for everyone’s financial situation, a consumer proposal may be the best way to provide you a financial fresh start.

How to avoid bankruptcy – File a Consumer proposal

A Consumer Proposal is a formal procedure that is governed by the Bankruptcy and Insolvency Act (“Act”).  It allows insolvent debtors to settle their debts for less than they actually owe, while avoiding bankruptcy.   Declaring bankruptcy can cause embarrassment, seizure of your assets, and can pose a financial hardship if required to pay surplus income.  A consumer proposal can deal with most of your unsecured debts, including:

  • credit cards of all kinds
  • overdraft accounts
  • unsecured lines of credit
  • loans
  • personal loans from family, friends and others
  • student loans (if older than 7yearsj)
  • income tax debt
  • ·GST

Secured debts, such as mortgages owing on your home and leased or financed vehicles would not form part of a Consumer Proposal and must be dealt with directly with the secured creditor.

The Act ensures that you are protected from legal actions by your creditors and means that your debt repayment follows a strict and monitored process. Your trustee will negotiate a settlement between you and your creditors, and you will typically make one monthly payment over a 5 year period.  Once you have made your final payment, your debts will be eliminated. Though you will be repaying more to your creditors than you would in a bankruptcy, these payments are spread out over a longer period of time.

What are the Advantages?

  • You are able to retain your assets.
  • It can be 75% less expensive then repaying your debts on your own.
  • Your creditors cannot commence or continue legal actions against you once the proposal is filed.
  • Professional accreditation can be retained which may not be in bankruptcy (for example, insurance brokers, director of a corporation, licensed real estate broker)
  • Interest if frozen at the date of your proposal.
  • Under a proposal, you will still be able to sponsor a family member through the Canadian immigration process, were it may be hampered under a bankruptcy.
  • It is an effective alternative to bankruptcy from the aspect of its effect on your credit rating: with a proposal your credit rating is not as adversely affected as in a bankruptcy.
  • If filing a second/third bankruptcy, the process can be lengthy and stressful.  A proposal would avoid this.
  • You likely won’t lose your income tax refunds.
  • If you opt to declare bankruptcy, it can be costly.  You may be required to make additional monthly payments, called surplus income payments. The more you earn at your job, the more you will pay monthly and the longer the duration.

More and more Canadians are looking at the Consumer Proposal option to provide them a financial fresh start.  At Doug Lee & Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.