Are you grappling with unaffordable debts and searching for a solution? If so, you may have considered various options: debt consolidation loan, credit counselling, and bankruptcy. But there’s another path to escape your debt woes called a consumer proposal. In this article we explore the Top 5 Reasons to file a consumer proposal.
A consumer proposal is a federal-regulated debt settlement program that lets you repay your unsecured creditors less than you owe. It’s a popular bankruptcy alternative that offers many benefits that other forms of debt relief can’t match.
If you’re overwhelmed by debt, the Licensed Insolvency Trustees at David Sklar & Associates can help you explore your options and identify the best way to eliminate them. We are licensed to provide consumer proposal services in Ontario, which can help you secure a future free of financial stress.
Is a consumer proposal worth it? That depends on the severity of your debt problems—there’s no one-size-fits-all solution. However, it makes sense in many situations based on our experience helping thousands of people become debt-free. Let’s explore five reasons you should consider filing a consumer proposal.
#1: You can’t afford to pay your debts in full
In Ontario, you are considered insolvent if you meet one or more of the following conditions: you owe at least $1,000 in unsecured debt, you are unable to pay your debts as they become due, or the total amount of your debts exceeds the value of your assets. Being insolvent doesn’t necessarily mean you need to file for bankruptcy, but it does mean you may be eligible for formal debt relief options such as a consumer proposal or bankruptcy if you’re struggling to manage your financial obligations.
In this situation, insolvency could force you to consider filing a consumer proposal or . It’s important to understand that being insolvent is a key qualification for both filing a consumer proposal and declaring bankruptcy.
The longer you wait to address the issue, the more your debts pile up, worsening your financial situation. Choosing between paying crucial household bills and loan payments will become routine, which can take an emotional toll. Impatient creditors may take legal action to recover the money you owe. And your credit score will suffer.
That’s why it’s crucial to take action when you recognize that repaying your debts in full is a hopeless task. A Licensed Insolvency Trustee (LIT) can help you confirm whether or not you’re insolvent and outline solutions to fix the problem.
#2: You want to protect your assets from creditors
The most notable difference between a consumer proposal and personal bankruptcy is the fate of your assets. Bankruptcy law demands you sell various assets to satisfy your debt obligations (some are exempt from bankruptcy). You assign these assets to your bankruptcy trustee, who arranges for their sale and distributes the proceeds to your creditors.
However, all your assets are legally yours to keep under a consumer proposal. There’s nothing you own that you have to give up.
An example is your RRSP investment portfolio. Creditors cannot seize funds held inside your RRSP, except for contributions made within the 12 months before your bankruptcy filing date. Unfortunately, investments held outside your RRSP are up for grabs by creditors, including stocks, bonds, precious metals, and cryptocurrencies. When you file a consumer proposal, you’re not required to surrender your investments, no matter how much you own or where you keep them.
Opting for a consumer proposal over bankruptcy is wise if you have substantial home equity. In Ontario, the equity in your primary residence is exempt from bankruptcy proceedings—but only up to $10,783. In other words, your creditors are entitled to every dollar above this limit. Hence, you need to pay out an excess equity in cash, which may necessitate selling your home. By filing a consumer proposal, you never have to worry about a forced sale of your property, as creditors have no claim to the equity.
A consumer proposal takes longer to complete than bankruptcy, which is one of its drawbacks. However, your assets, everything from tax refunds to real estate, are never in danger of confiscation. A consumer proposal is a safer way to get out of debt if you own substantial investments and property. David Sklar & Associates can evaluate the risk your assets face during bankruptcy and advise whether filing a proposal is preferable.
#3: You want to stop creditor collection actions
Apart from bankruptcy, a consumer proposal is the only way to stop collection activities dead in their tracks. Once your trustee registers your proposal, creditors must cease all collection activities immediately. They won’t be able to call you, garnish your wages, or freeze your bank account.
Some debt settlement companies or credit counsellors may claim they can stop collection actions. But in reality, any agreement they make with your creditors has no legal authority. Since your creditors are not legally bound to respect it, they can opt-out anytime and resume their collection tactics.
Under a consumer proposal, the court intervenes on your behalf to halt collection calls, wage garnishments and other legal threats. Unlike an insecure agreement made by a private debt expert, creditors are legally obliged to obey the court order. Therefore, your protection is certain. From here, creditors are ought to cooperate with your LIT during the consumer proposal process.
#4: You want to negotiate a new debt repayment plan
A consumer proposal is a good solution if you’re headstrong about repaying your lenders at least a portion of your debts. With a revised payment plan that fits your budget, you’ll be able to keep up with your payments. If you can achieve this, you avoid bankruptcy and its negative consequences, such as social stigma and loss of assets.
Filing a proposal allows you to engage with your creditors to create a new repayment plan, one based on what you can afford to pay. With the assistance of your LIT, you’ll have one low monthly payment to make over five years. With a manageable financial commitment, you’ll pay off your debt with ease.
That said, it’s essential to maintain a stable income during your consumer proposal. Otherwise, you risk falling behind on your monthly payment. Therefore, avoid making hasty decisions that can endanger your income, such as moving or switching careers. At the very least, plan for them wisely. If you miss three months payments, your proposal is cancelled, and your original debts return in full.
Learn the steps in filing a consumer proposal.
#5: You want meaningful and long-lasting debt relief
There’s a wide array of strategies you can employ to escape the debt cycle. But not all will generate the results you need to start fresh.
Debt consolidation loans, balance transfer credit cards, and unsecured lines of credit are some examples of DIY debt remedies. These can help, as you save money by merging expensive debts under a lower interest rate. However, you still need to repay 100% of the principal, so all you’ve effectively done is swap one debt for another. Also, you’ll need a good credit score to obtain a low rate. If you have bad credit, you won’t be eligible for these loans in the first place.
In contrast, a consumer proposal delivers financial relief that can lead to life-changing results: Up to 80% of your principal may be eliminated. You have five years to repay what’s left. And you won’t pay any interest, late fees, or other hidden charges.
A consumer proposal is more than just a new repayment agreement with your creditors—it sets the foundation for a prosperous future, with debt no longer holding you back.
H2: Get started filing a consumer proposal with David Sklar & Associates
There are pros and cons to filing a consumer proposal, as with bankruptcy, debt consolidation loan, and other debt relief strategies. But let’s say you’re comfortable repaying a portion of what you owe, wish to protect your assets, and desire legal protection from creditors. In that case, a consumer proposal may be a good fit.
A meeting with a Licensed Insolvency Trustee at David Sklar & Associates can help you determine if a consumer proposal is the right option for you. Book your free, no-obligation consultation with one of our supportive and experienced trustees today. You deserve a debt-free future—we’ll act as your guide to ensure you get there.
