Benefits Of A Proposal
Once your creditors and the courts approve your proposal youll have immediate relief from your creditors and less of an effect on your credit report than bankruptcy would make. Youll pay back debts according to the terms of the proposal, and Exelby and Partners Ltd. will be with you during this step as well.
A consumer proposal does several things when approved. Most wage garnishments stop, interest stops accumulating, collection companies and creditors can no longer contact you, you are not in jeopardy of losing your house or other assets, and you repay only a portion of your debt owing with a maximum repayment period not exceeding five years.
However, a consumer proposal will not allow you to pick and choose which debts to include, eliminate your support and alimony obligations, eliminate certain student loan obligations, or deal with your secured debts, such as your house mortgage and car loan.;Learn more about filing a consumer proposal in cities like Grande Prairie, Fort McMurray, Red Deer, Edmonton, and Spruce Grove. Our licensed professionals are available to help you in Alberta, Northwest Territories, or Nunavut. Contact us today!
What Is Consumer Proposal And Bankruptcy
A Consumer Proposal is “a legally binding debt settlement agreement to repay your creditors a percentage of what you owe in exchange for full debt forgiveness.” Bankruptcy on the other hand is “a legal procedure in which you assign your property to a Licensed Insolvency;Trustee as part of a process that relieves your debts”.
If you find yourself buried under a mountain of debt that is impossible to pay back, bankruptcy might be the solution youre considering. It will sweep away most of that debt, with a few exceptions such as student loans, child support, and fines. Youll be protected from legal action relating to your debts, some assets will be protected, and if you had already been experiencing wage garnishes related to your debts, theyll cease once youve declared bankruptcy. In short, you get a do-over. It sounds like a good deal, but the toll it takes on your credit is huge.
Alternatives To Consumer Proposal
If you are facing overwhelming debt and have decided to take action, youll want to know what debt relief solutions are available to you.;
Attending a no-obligation, free, confidential meeting with a Licensed Insolvency Trustee is a great next step, as Trustees are trained to analyze your situation and offer the most beneficial courses of action. Here are some alternatives to consumer proposal you may hear about.
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How The Debt Industry Works In Canada
If you are thinking about a consumer proposal, debt consolidation, or bankruptcy, then you will likely encounter these players.
Why read about this?
Its important to remember that debt is still an industry. Despite what your friendly bankruptcy trustee says, they still make money from your debt.
Even the non-profit credit counselors are making money from your debt, which Ill talk about later.
So lets go through the different players in the Canadian debt industry. My intent is to break things down into very simple and concrete terms.
If you have good credit, good income and a manageable debt load but need to consolidate your debt payments into one monthly payment to make life easier, your local bank should be able to help you with a consolidation loan at reasonable interest rates.
The Credit Counsellors
Debt Settlement Firms
A lot of US debt settlement firms have surfaced in Canada as debt levels have now surpassed the US. Here is a very brief overview of how a debt settlement firm works.
They attempt to informally settle with your creditors but in order to do so you need a lump sum payment to offer the creditors which most people in financial difficulty dont have.
A debt settlement firm be it US or Canadian will set you up on a monthly payment plan to create a pool of cash that can then eventually be used to settle the debt. Depending on the debt load this can take between 12-36 months.
The Bankruptcy Trustee
And then us . . . 4 Pillars Consulting Group
What Are The Differences In Obligations
- Bankruptcy requires monthly reports of personal finances. This includes pay stubs from their employer and all monthly expenses. A trustee will review this information on a monthly basis to determine if surplus payments should be made.
- Agreed upon payments for;consumer proposals;are fixed, so there is no need for monthly reports.
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Are Assets Treated Differently Between A Consumer Proposal And Bankruptcy
If you do;a consumer proposal, you;can retain your assets whereas in a bankruptcy your assets;may be affected. This includes any equity in your home greater than $10,000, a car worth more than $6,000 , investments, tax refunds and RRSP contributions made in the last 12 months.;In a bankruptcy, you sign over your assets to the LIT and they are then sold or transferred to pay off your creditors.
When Is A Consumer Proposal A Better Debt Solution Than Bankruptcy
Because each situation is different, the only way to know if a consumer proposal is a better debt solution than bankruptcy is to speak with an LIT who can assess your financial situation and help you weigh both options.
However, a consumer proposal is a less serious debt forgiveness program than bankruptcy, and is more beneficial to both debtors and creditors. In a consumer proposal, your LIT negotiates with your creditors on a new debt settlement amount. In a bankruptcy, your creditors will receive much less and the impact on your credit score is much greater.
Here are the top three reasons why you should consider a consumer proposal over bankruptcy:
What Are The Benefits Of Filing A Consumer Proposal
Every person has a unique financial situation, which means theyll need to consider all their options when deciding how to best solve their problems. A consumer proposal is an excellent alternative to filing bankruptcy and offers numerous benefits. Some of the best parts about filing a consumer proposal include:
- Interest Stops: As soon as you file a consumer proposal, interest will stop accruing on your debts, which will make it easier for you to repay what you owe and get your financial situation under control.
- Collection Calls Stop: Your creditors will have to stop the incessant collection calls when you file a consumer proposal.
- Protection from Legal Action: A consumer proposal protects you from legal action by your creditors, including wage garnishments, freezing of bank accounts, and collector calls.
- No Forfeiture of Assets: Because you make an agreement with creditors to pay off a portion of your debt, you will not have to surrender your assets.
- One Monthly Payment: You can make a single monthly payment that is significantly lower than having to pay all your creditors individually.
- Possibility of Early Payment: If you have the funds to do so, you can potentially pay off your debts early, allowing you to complete the process sooner than planned.
- Avoid Bankruptcy: You will avoid bankruptcy, which would otherwise negatively impact your credit for years.
What Are The Costs And Fees Of A Consumer Proposal Versus Filing For Bankruptcy
When doing a consumer proposal, the;LIT’s fees are included in the payment you negotiate with;your creditors. For example, if your CP has you paying $400 per month for 60 months, the;LIT’s fees are taken from those funds.;However, if you were to file for;bankruptcy, the cost is determined by any surplus income you might have , any assets that you may want to retain, and the monthly contribution to cover the administration costs. If there is;no surplus income or assets, the bankruptcy fee will be approximately $1,800.
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How To Make A Consumer Proposal
There are a number of steps that take place when filing a consumer proposal with your creditors.
1. Meet with an LIT:;;You must first find and meet with a Licensed Insolvency Trustee who will discuss your situation and work with you to develop a consumer proposal. You must provide your LIT with a complete list of all your assets as well as your debts.
2. File the proposal:;;Your LIT will file the proposal with the Office of the Superintendent of Bankruptcy . Once your proposal is filed, you no longer make any payments to your creditors. As well, the creditors must stop any actions they have taken against you to collect the debt, such as garnishing your wages or any lawsuits.
3. Submit proposal to creditors:;;Your LIT will also submit your proposal to your creditors who have 45 days to either accept or reject it. They may also request a meeting.
4.;Meeting of creditors if applicable:;;If one or more of your creditors is owed at least 25% of the total value of the debt owed, they may request that a meeting take place. The terms of the meeting are as follows:
- it must be requested within 45;days of the filing of the proposal ,
- it must be held within 21;days after being called,
- the creditors must vote to either accept or refuse the proposal at the meeting, and
- the proposal will be considered to have been accepted by the creditors if no meeting is requested;during the 45 days from the date the proposal was filed.
Consumer Proposal Vs Bankruptcy: Whats The Difference
A bankruptcy and a consumer proposal may be excellent options for someone who is experiencing financial troubles.; A;consumer proposal;is a great option for people who have the ability to pay something to their creditors but need to change their;payment arrangements, and they have equity in assets they want to keep. A;bankruptcy;is a great option for those who are overwhelmed by their debt, and perhaps they dont have steady income, making it really difficult to afford payments they owe to creditors.;
While both a bankruptcy and a consumer proposal can provide a financial fresh start, there are a few key differences.;
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How Much Debt Do I Need To Have Before I Can File A Consumer Proposal
You can file for a Consumer Proposal in British Columbia if you have between $1,000 and $250,000 of unsecured debt .
If youre are dealing with more than $250,000 of unsecured debt, you may still be able to file, but some different rules will apply to your proposal. A Licensed Insolvency Trustee will be able to fully explain this option to you.
How To File A Consumer Proposal In Canada
A consumer proposal is a legal process under the Bankruptcy and Insolvency Act that must be administered by a Licensed Insolvency Trustee . Accordingly, your first step is to set up a meeting with someone from an LITs office.
An LIT can help you negotiate a fair settlement with your creditors via a consumer proposal, with manageable fixed monthly payments for up to five years or a lump-sum payment. A proposal is approved when the creditors who own the majority of your debt have agreed to the terms of your proposal and the courts approve it. Once accepted, the proposal is binding on all parties. As long as you then fulfill the terms of your proposal, you will be released from the unsecured debts you owed.
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The Advantages Of A Consumer Proposal
- One of the main reasons for filing a proposal is that it allows a person to keep assets that might be lost in a bankruptcy.
- A consumer debt proposal can be a very powerful alternative to filing bankruptcy.
- It allows you to keep assets that might be lost in a bankruptcy.
- You receive an immediate legal order protecting you from creditor collection action through this potent legal process.
- You will also stop making payments on your unsecured debt through a consumer proposal / bankruptcy.
- The trustee will handle all communications with your creditors on your behalf.
- A proposal is a legally binding agreement to repay a portion of your debt between you and your unsecured creditors.
This is becoming a very popular debt relief option for Canadians dealing with massive debt.
Collection calls will stop.
Wage garnishment orders contemplated or in place will cease;
Major Differences Between Consumer Proposals & Bankruptcy
Both bankruptcy and consumer proposals are governed by the Bankruptcy and Insolvency Act, directives issued to bankruptcy trustees by the Superintendent of Bankruptcy, and provincial laws. Theyre intended to provide protection from the courts for people who are insolvent and unable to repay their debts in full.
Bankruptcy was originally designed to provide honest people who had fallen upon unfortunate circumstances a fresh start when they had so much debt they didnt have any hope of repaying it.;
How bankruptcy works is that if someone files for bankruptcy, all collection activity on the debts included in the bankruptcy is stopped and creditors are typically forced to accept less for the debts owed to them than the borrower originally agreed to repay.
A consumer proposal is different from bankruptcy in that your bankruptcy trustee must offer your creditors an amount of money to settle your debts and your creditors vote on the offer. If the creditors who own the majority of your debt accept it, you repay the agreed on amount over a set length of time .
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Consumer Proposal Vs Bankruptcy Ontario: What Is Bankruptcy
A consumer proposal is an excellent option for you if you can afford to make payments towards your financial debts monthly. If you are entirely unable to make enough payments for a consumer proposal, then bankruptcy is probably your only other alternative.
By statute, the offer you make your creditors via a consumer proposal must be a much better option than what your creditors would certainly get in your bankruptcy. I help people make that analysis during our initial no-cost consultation prior to them selecting the ideal insolvency process for them. We discover the choices readily available, including a consumer proposal vs bankruptcy Ontario. Bankruptcy is an alternative when you cannot afford to fund a consumer proposal to your creditors.
If bankruptcy is the selected alternative, you work with me, as the Trustee, to complete the needed documents. I then submit them with the Office of the Superintendent of Bankruptcy Canada . When the OSB issues its Certificate, after that you are formally bankrupt.
From that point on, the Trustee will deal directly with your creditors in your place. As soon as you are bankrupt:
- you will stop making payments to your unsecured creditors;
- any type of garnishments against your wages or bank account will stop; and
- any lawsuits for money against you from your creditors will also be stopped.
Consumer Proposal Vs Bankruptcy Ontario: Who Qualifies For Bankruptcy
You can declare bankruptcy if you:
- Live in Canada.
- Continue business or have assets in Canada.
- Have financial debts totalling a minimum of $1,000.
- Are insolvent.
There are different tests for insolvency laid out in the BIA. They are:
- for any reason, you are unable to pay your financial debts as they generally come to be due;
- you have ceased paying present debts in the regular course as they usually are due; or
- the complete worth of your property is not, at a reasonable valuation, enough, or, if sold at a sale under legal process, would not be sufficient to make it possible for repayment of all your financial obligations.
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Consumer Proposal Vs Bankruptcy: What You Need To Know
You might have explored your options for dealing with your financial difficulties.;In doing so, maybe you;determined that a Debt Consolidation Program; or a debt consolidation loan are not viable options for you. Instead, you might now be considering options that fall under the Bankruptcy and Insolvency Act like a consumer proposal or a bankruptcy.
Impact Of A Consumer Proposal On Credit Rating
When you file a consumer proposal your credit rating will automatically be set to an R7 rating, while if you file bankruptcy you will receive an R9 rating which is the worst possible credit so a consumer proposal does not have as dramatic an effect on your credit rating as a bankruptcy.
The record of your consumer proposal will remain on your credit report for 3 years after you receive your certificate of completion after making your final payment as required in your proposal.
As a consumer proposal can last for up to 5 years, the record of your proposal can remain on your credit report for up to 8 years.
You can also complete a consumer proposal in only a few months by offering a lump sum payment which in turn means the record of your consumer proposal will only remain on your credit report for slightly more than 3 years.
When you receive your certificate of performance you can send a copy of this document to your creditors which will allow your credit report to be updated as soon as possible.
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