Consumer Proposal (Debt Settlement Arrangement)
A Consumer Proposal (or debt settlement arrangement) is a settlement offer made by a person to his or her unsecured creditors to reduce the amount of debt owed and stop all interest.
A Consumer Proposal freezes interest and allows you to make one monthly interest-free payment to settle all of your debts. The amount you pay is typically only a portion of the total amount you owe. A Consumer Proposal can be filed by a person owing less than $250,000 (excluding the mortgage(s) or any debts secured by your principal residence).
Consumer Proposal Advantages
- Repay significantly less than the amount of debt you owe
- Flexible payment terms based on what you can afford to pay, with no interest
- One monthly payment that deals with all of your debts including credit cards, lines of credit and income tax owed to the government
- Immediately stops wage garnishments, legal actions and collection calls
- Does not require the liquidation of assets such as your home or vehicle - as long as you continue to make your payments
- Avoids the need to file for bankruptcy
- Does not impact your ability to sponsor family to immigrate to Canada
- Better impact on your credit rating than bankruptcy
Disadvantages
- A Consumer Proposal does have a negative impact on your credit rating, although not as bad as bankruptcy
- You will have to rebuild your credit rating to improve your credit score and borrow again in the future
Credit Rating
In addition to borrowing/payment history, your credit rating is made up of several factors including job and residence stability, marital status and income. If you file a Consumer Proposal, the credit bureau will keep a record of your filing for a maximum of 6 years from the filing date of the Consumer Proposal.
Cost
Once the payment terms on your Consumer Proposal are set, there will be no additional cost or fees. Your monthly payment terms will be tailored to your specific circumstances and will include a review of your income, assets, and total debt. The Trustee’s fees are based on a government formula that are paid out of the monthly payment you are making.
Basic Conditions for a Successful Consumer Proposal
Once your Consumer Proposal is filed, you are no longer making your various monthly payments to your unsecured creditors which frees up room in your household budget for your Consumer Proposal payment. The Consumer Proposal payment is often less than the various minimum monthly payments you were making. The key to a successful Consumer Proposal filing is having the necessary room in your monthly household budget for the monthly Consumer Proposal payment.