Canadians have many questions about what a Consumer Proposal is. Here are some brief answers to some of the most popular questions we get asked every day.
1. How does a Consumer Proposal exactly work?
Filing a Consumer Proposal is a very straightforward process. It is an offer to your creditors to negotiate the repayment of the debt you owe. To get started you need to approach a Licensed Insolvency Trustee (LIT) with your financial details and a description of your debt. The Trustee will study your situation carefully and work on a proposal offer with you. In this Consumer Proposal, you will discuss the extension of your debt repayment period, consolidation of all your debt, and repayment amount.
Once everything is decided, the Consumer Proposal will be presented to the creditors to see if they accept your proposal offer. In most cases, the lenders will agree to the proposal offer because it would allow them to recover more of their outstanding debt than if you were to go bankrupt. Consumer Proposals can be as short as a one time lump-sum payment up to the maximum of five years.
2. Will I lose everything if I file a Consumer Proposal?
A Consumer Proposal is meant to protect your assets from unsecured creditors; so no, you will not lose any of your property. Your car and home will remain in your possession and ownership as you pay off your debt in manageable installments. Your auto loan and mortgage payments are not included in a Consumer Proposal so you will have to continue making those payments separately after your Consumer Proposal takes effect.
3. Can All My Debt be Included?
The Consumer Proposal will only include your unsecured debt and therefore does not include mortgage, auto loans, and other such secured loans. These unsecured debts typically include:
- Credit cards – Overdue and mounting credit card bills can be consolidated and settled with the help of a Consumer Proposal.
- Personal loans and Lines of credit – Like credit cards, you can consolidate all of your personal loans and pay them off together with a Consumer Proposal.
- Income taxes – Income tax is one of your primary obligations. However, many people do not realize that income tax balances can be included in a Consumer Proposal.
- Payday loans – Payday loans are usually of a short duration and small amounts. You can use a Consumer Proposal to extend the loan period and pay the money back at a more comfortable pace.
4. What Happens to My Credit Cards When I File a Consumer Proposal?
Unfortunately you will have to surrender all your credit cards when you begin the filing process. After your Consumer Proposal is submitted and approved you can apply for a secured credit card if you need one for your everyday use.
5. What Happens if I Co-signed a Loan with Someone?
If you’ve co-signed a loan with your spouse, partner, parents, siblings, or any other such associate, they are equally responsible for paying off the debt. You may need to file the Consumer Proposal under both your names and understand the consequences that will fall on both of you. However, there are some advantages if you file a Consumer Proposal jointly. But bear in mind that if you file a CP jointly, you will both suffer a drop in your credit rating and have the R7 rank in your history.
6. How is a Consumer Proposal Different from Bankruptcy?
Many things set a Consumer Proposal apart from bankruptcy. In some situations, bankruptcy might actually be preferable because it will give you a fresh start and establish a new financial history. Here are some ways in which the two are different:
• With a Consumer Proposal you can’t have more than $250,000 in debt excluding the mortgage on your residence. You can file for bankruptcy regardless of the size of your debt.
• In a Consumer Proposal you have to pay a fixed amount to your LIT every month. In a bankruptcy your payment amount is to some degree unknown at the start as your payment will depend on your income over the course of the bankruptcy.
• You will retain your valuable assets like your house and cars when you file for a Consumer Proposal. A bankruptcy may affect ownership of property and assets depending on your situation.
If you want to know more about Consumer Proposals and would like a FREE consultation, just give us a call here at Brief & Associates. We will be happy to help you get out of debt.