consumer proposal pros and cons

7 Advantages of a Consumer Proposal

According to Federal Government statistics, Consumer Proposals continue to grow in popularity across the country as a practical way for an overburdened individual to obtain relief from unsecured creditors. In fact, the amount of Consumer Proposals filed on an annual basis has eclipsed the number of personal bankruptcies filed! Why would this be? What is so good about a Consumer Proposal? Let’s look at some of the top reasons, in no particular order:

1. Stay of proceedings – this means that once a Consumer Proposal is filed unsecured creditors must stop all collection actions. This would include such things as phoning, sending letters, court proceedings and garnishees including income tax. The result? Peace and quiet. You can answer your phone.

2. No interest –  no interest is added to the unsecured debt once the Consumer Proposal is registered with the federal government and while the Consumer Proposal is ongoing.

3. Percentage on the dollar – the vast majority of Consumer Proposals offer a payback to creditors of a percentage on the dollar over time. This includes not only income tax debt but also credit card debt, finance company debt (e.g. payday loans) and various other debts. The payback period can be tailored to best suit your situation but typically varies from 24 months to 60 months.

4. Payments that fit your budget – this likely the best thing about Consumer Proposals. Other debt rescue plans, such as a consolidation loan, or other debt proposals, carry repayment terms that don’t offer much overall relief due to the high monthly payment. In contrast, a Consumer Proposal is extremely flexible and can be creative in the way the Consumer Proposal is drafted. For example, if a person has seasonal income, the Consumer Proposal could propose higher payments during the working months and a very modest payment during the slow time of the year. This ensures that there is enough monthly cash flow to meet your everyday needs.

5. You can keep control of your assets – many assets are exempt from your creditors however sometimes people have assets that are not sheltered by a provincial exemption. In a bankruptcy, a person’s creditors could potentially force an asset to be liquidated. In a Consumer Proposal, that is not the case.

6. No hidden fees – there is a fee to file a Consumer Proposal that is regulated by the Federal Government and generally comes from within the Consumer Proposal funds. For example, if the Consumer Proposal call for payments of $200 per month for 60 months, the fees of the trustee come out of the $200. As a result, the one payment of $200 covers both repayment to the unsecured creditors and the fees of the Licensed Insolvency Trustee.

7. Credit history – a Consumer Proposal technically reports better on your credit history than a bankruptcy. However, anecdotally, many lenders tell us they view both filings the same way. We believe this will change over time as lenders become more exposed to and educated about Consumer Proposals.

Everyone’s situation is slightly different and the above seven points generalize seven good things about a Consumer Proposal and should not be relied upon for your specific situation. Rather, we would encourage you to take control of your finances and make an appointment. Sometimes, the bankruptcy option is the better option due to budget restrictions and other circumstances. The only way that a Consumer Proposal can be filed in Canada is through a Licensed Insolvency Trustee (LIT). Most LITs, including our office, offer a free initial assessment where you can obtain the necessary information to make a wise choice.

If your debt is not going down, or if you are experiencing oppressive collection like phone calls from collectors or an income tax garnish, don’t hesitate to contact us to discuss your situation.

While some of these terms may sound intimidating, make an appointment and ask questions! In our experience, once you find out the details, debt stress will leave your life. Why not make that first appointment, it’s free!

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.