Repaying your debts can take a long time, especially when trying to tackle the amount all on your own. You could struggle for years and still not make much progress with your creditors.
Using a solution like a consumer proposal will make the repayment process easier and faster but by how much? How long will it take from start to finish?
Learn more about the timeline you can expect when you sign up for our consumer proposal services in Ontario to repay your debts.
A Brief Introduction to Consumer Proposals
A consumer proposal is a legally binding agreement made between a debtor and their unsecured creditors to repay their debts. The proposal effectively lowers the debt total and halts collection activities, making repayment much more manageable.
If you owe less than $250,000 (excluding the mortgage on your primary residence) and you think you’re unable to repay your debts, you may be eligible to file for a consumer proposal.
The repayment period for a consumer proposal is a maximum of 5 years, but that doesn’t include how long it takes to file the proposal in the first place. That timeline can vary, depending on the following steps:
Step One: Meeting Your Trustee
The first step in a consumer proposal is to consult a licensed insolvency trustee (formerly known as a bankruptcy trustee). The licensed insolvency trustees at David Sklar & Associates offer free consultations and have helped thousands of clients file consumer proposals. Our trustees know what they’re doing.
During the consultation, your trustee will look over your financial situation to determine if a consumer proposal is the best option for you or if you should consider a different debt relief strategy like a Division 1 Proposal or personal bankruptcy.
The length of this step depends on you. You could agree to start a consumer proposal right after the consultation, or you could take some time to mull over the conversation. If the trustee recommends a consumer proposal and you agree, you can move on to Step Two.
Step Two: Filing the Consumer Proposal
Next, your trustee files your consumer proposal with the Office of the Superintendent of Bankruptcy. The Office oversees licensed insolvency trustees and maintains public records of insolvency filings.
Once the proposal is filed, all of the unsecured creditors named in the proposal will need to pause their collection actions. This includes collection calls, wage garnishments and legal action taken against you. You will stop accruing interest and collecting penalties. Essentially, you will get to hit the pause button on your debts.
At this stage, you will stop making direct payments to these creditors. Instead, you will start making payments to them through the repayment schedule outlined in the proposal.
Step Three: Informing the Creditors
After filing the proposal with the Office of the Superintendent of Bankruptcy, your trustee will submit it to your creditors. They will also submit a report regarding your financial situation.
Step Four: Waiting for the Creditors to Answer
After filing the proposal with the Office of the Superintendent of Bankruptcy, your trustee will submit it to your creditors. They will also submit a report regarding your financial situation.
Step Five: Starting the Proposal
If the creditors agree, the consumer proposal goes into effect. You now need to follow all of the proposal’s terms and make the required payments to your trustee, who will distribute the funds to the creditors.
How long will it take to complete the payments? The maximum time frame is 60 months (5 years). However, you can set up a shorter timeframe with your trustee. You can agree to 48 months (4 years), 36 months (3 years), or less if you think you can manage it.
Remember that the timeframe will determine the repayment amount. If you’re worried about making payments, you will want to consider the maximum time frame. The commitment is longer, but the individual payments are lower.
You can also make a lump sum proposal to your creditors. This type of agreement often entices creditors because they can recoup a portion of owed funds in an expedited time frame. This means no monthly payments, and the entire process wraps up quickly. You should talk to your trustee if you’re thinking of giving a lump sum for your repayment.
As you can see, this step can either be completed immediately with a lump sum or take 5 years. It all depends on your financial situation.
Step Six: Re-submitting the Proposal
If the majority of creditors do not accept your consumer proposal, you have the opportunity to amend your proposal and try again. Your trustee will help you make reasonable alterations to your proposal and then resubmit it. These new terms could change the tides and set your proposal into motion.
If it gets rejected again, you may want to consider another debt relief method, like filing for bankruptcy. Consider the differences between a bankruptcy vs consumer proposal to identify which option is best suited to your circumstance.
Missed Payments
To complete your proposal, you will need to make every scheduled payment. Once you do that, you will be released from the debts that you owe to your unsecured creditors. When you don’t make all of the necessary payments on-time, you risk annulling the proposal.
If you fall behind 3 months of payments without filing an amendment, the proposal will be deemed annulled. At that point, the benefits of the proposal are reversed, and your debts return to normal. Creditors are then allowed to contact you and take legal action against you to collect the funds you owe them.
If you think that you will miss a payment or make a late payment for your consumer proposal, you should talk to your trustee. Together, you can amend the proposal so that you can manage the repayments better. You can also take this as a sign that you need to improve your debt management skills. Simple changes like following a basic monthly budget and monitoring deadlines can help you make these payments on-time every month.
Increasing Your Income
One of the best benefits of a consumer proposal is that the repayment amount will stay the same, even if you suddenly increase your income. This means if you get a raise, take on a second job, or come into an inheritance, you don’t have to change the terms of the agreement that’s already in effect.
You can also use this benefit to your advantage. By cutting costs with your monthly budget or increasing your income, you could make your repayment process much easier or shorter if you’d like. At the very least, you could make sure that you never miss a payment and risk annulling the proposal.
Here are some ways that you could boost your savings for the sake of your proposal:
- You can start following a careful budget every month
- You can cut everyday costs that you don’t need
- You can ask for a raise from your current employer
- You can get another job with part-time hours
- You can start a side-hustle
- You can sell an asset, like an old vehicle
What Happens After the Consumer Proposal?
When you finish all of your repayments and credit counselling sessions, your consumer proposal will be officially complete. Your debts will be considered paid in full and you will have a clean slate to rebuild your personal finances.
While the repayment schedule is over, the proposal isn’t completely erased from your life. There is still a record of it on your credit report. First, it appears on your report when the proposal is in-progress. Then, once the proposal’s complete, it stays on the report for an additional 3 years.
The timeline for your credit report will ultimately depend on your repayment schedule. If you paid a lump sum and completed your proposal quickly after filing, it may be on your report for only a few years. If you take the longest repayment schedule (5 years), the notice will be removed one year later (that is, six years from the date you filed).
How Does It Compare to Personal Bankruptcy
Personal bankruptcy will appear on your credit report for 6 to 7 years after you receive a Discharge — this is typically 9 months after filing if all the terms are met, and there are no objections.
There is a chance that a record of a consumer proposal will stay on your credit report longer than a record of bankruptcy, but keep in mind that this is only the case the first time that you file for bankruptcy.
If this is the second time you’ve filed for bankruptcy, then the record stays on your report for 14 years after the Discharge.
Improving Your Credit Score
A record of a consumer proposal or personal bankruptcy on your credit report could affect your ability to apply for new credit because it will lower your score.
A lowered credit rating will influence lenders, encouraging them to offer higher interest rates or more substantial restrictions on loans. It will be an obstacle when you’re trying to get a new credit card, buy a vehicle, rent an apartment or get a business loan.
If you find this demoralizing, it’s important to remember that creditor collection and unresolved debts also appear on your credit report and negatively affect your score. Not addressing your insolvency with a solution like a consumer proposal can be much more damaging to your credit in the long run.
You should also know that your credit score isn’t permanent. You can boost it, even when your proposal is still sitting on your report. Consider adopting responsible credit habits to bring that score to a higher category:
- Maintain a low credit utilization rate
- Pay your bills on time
- Pay off debt more often
- Pay more than the credit card minimum every month
- Don’t apply for more credit cards or accounts
At David Sklar & Associates, we offer credit counselling services to teach you how to responsibly use credit, which could help you rebuild your score.
Virtual Consumer Proposal Services at David Sklar & Associates
Here at David Sklar & Associates, we understand that many residents have been thrown into financial instability because of this health crisis and are concerned about what to do next. If you need financial help, we are still here for you.
We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.
Sometimes, it can feel like repaying your debt will take forever — that you will be dealing with this problem for the rest of your life. With a consumer proposal, you don’t have to wonder how long it will take you to clear your debts. You’ll have a good idea about how long it will take to repay your creditors and get that clean slate you’ve been hoping for.
