28 Feb What is a consumer proposal?
We’ve spoken about this topic many times on our videos and podcasts. As we always say, it is extremely important to stay informed about all the topics concerning mortgages.
A consumer proposal is a legally binding debt settlement agreement, filed with a Licensed Insolvency Trustee, to repay your creditors a percentage of what you owe in exchange for full debt forgiveness. For those people having problems keeping up with monthly debt payments, a consumer proposal is an option for debt relief while avoiding bankruptcy.
How does it work?
Your payment terms are based on an agreement between what your creditors expect to receive and what you can afford to repay. They can be spread out over a maximum of 5 years and are interest free. In most cases, this can result in savings of as much as 70% to 80%.
Is it limited to some types of debt?
A consumer proposal can eliminate almost all unsecured debts. Part of this list of debts are credit cards, some student loans, bank loans, taxes, and payday loans.
What are the advantages?
The most important one is knowing you have a choice other than filing for bankruptcy. By opting for a consumer proposal the debt is reduced up to 70% and it allows you to keep all your assets, including the equity in your home (if you have any). It also allows you to merge debts into one, making the monthly payment more affordable. Since a consumer proposal is a legal process under the Bankruptcy & Insolvency Act, you get immediate protection from your creditors.
The only “little” disadvantage is that the consumer proposal will affect your credit report. We say “little” because most clients actually see an improvement in their credit score after completing the program. It really helps you rebuild your credit.
What do you need to qualify?
This program is regulated by the Federal Government. As such, it is required that, in order for a person to qualify for a consumer proposal, the person be able to afford to pay a portion of the debts, the debts must be greater than the value of any assets owned, the unsecured debt outside the mortgage needs to not surpass the quarter million dollar mark and it only applies to Canadian residents or people who own property in Canada.