Consumer Proposals: 10 Reasons It’s the Top Debt Relief Solution for BC Residents

The debt cycle is tough to escape. What starts as a small debt turns into large interest amounts that snowball into yet more debt to pay. You borrow and repay and borrow and repay, a loop with growing balances on every payment.

Soon, the bills and rates become too high. No matter how much work or money you put down, you still end up in the red. It quite simply (and mathematically) becomes an impossible hole to climb out of.

At that point, you need an entirely new approach—some transformative tool or solution that can bring your debt load to a manageable level. Luckily, that debt relief tool exists: The Consumer Proposal BC.

What is a Consumer Proposal?

A Consumer Proposal is a formal request to alter debt repayment terms with creditors. You work with federally regulated professionals (called Licensed Insolvency Trustees) to “propose” a new debt agreement. The Proposal reduces the debt owed and gives you more time to make payments.

You and your LIT will craft the Proposal together. On your half, you bring the financial information (i.e your debt and assets) and can even attend first meetings with creditors. Then when ready, the LIT will file the Consumer Proposal with the Office of the Superintendent of Bankruptcy (OSB). Creditors have 45 days to either accept or reject the Proposal.

Acceptance goes to a vote, with voting power determined by the dollar value of proven claims. If most creditors accept, you have new (and better!) debt conditions.

10 Reasons a Consumer Proposal is the Best Debt Relief Option

It all sounds simple and straightforward. What then makes the Consumer Proposal so effective? Here are ten key advantages:

1. Pay less than you owe: Of most importance, a Consumer Proposal lets you settle your debt for less than the total amount owed. You could end up only paying back as low as 15-25%. That translates to direct money saved and repayments that are feasible.
2. Earn relief from collection actions: Your LIT will file a Stay of Proceedings that protects you from all collection actions. That means the daily phone calls cease. All legal action must pause, and credits cannot pursue new proceedings. You also retain your income as all wage garnishment ends. The process is governed by the Bankruptcy and Insolvency Act (BIA), so you are protected by the weight of the Canadian Government and provincial laws.
3. Retain your assets: Compared to a Bankruptcy, a Consumer Proposal protects more assets from liquidation. You can keep your home, car, and significant personal belongings. As a bonus, coverage also extends to your tax refund (so tax time is more straightforward).
4. Relieve most types of debt: Not all debt is the same, and some have extra protections. For example, tax burden, alimony, and student loans have special considerations or collection powers. Luckily, a Consumer Proposal is comprehensive and covers most unsecured debt, from credit cards to payday loans to lines of credit. That gives you the space and capability to focus on priority debts.
5. Simplify your payments: All the fees are lumped into one single payment. You make that payment to your LIT, who then makes payments to creditors on your behalf. Not only does this consolidate debt, but it is far easier to understand and keep track of.
6. Locks in payment terms: A Consumer Proposal creates firm repayment terms. Firstly, that means it is interest-free. Payment nor balances accumulate over time, which places an effective brake on the debt cycle. Secondly, you are protected from future rate increases or economic instability. Such fixed terms make it easier to make financial plans.
7. Protect your credit rating: You will experience less severe credit consequences with a Consumer Proposal vs Bankruptcy. Your rating drops to an R7 rather than an R9. Better yet, Equifax and remove a Consumer Proposal from your credit report  years after you pay off all the debts included in the Proposal, or 6 years after you sign the Proposal (whichever is sooner).
8. Enjoy flexible repayment plans: A Consumer Proposal is tailored to your financial situation. The typical schedule occurs over five years, that way you can make payments and still maintain a reasonable standard of living. You can finish the program early if you choose, and there is no need to report income changes.
9. Receive professional guidance: Only a LIT can facilitate a Consumer Proposal. And that gives you asked to licensed professionals. They will ensure that the entire debt management plan and process is fair and manageable. Such support is invaluable throughout a complex financial challenge.
10. Rebuild your stability: A Consumer Proposal includes financial counselling sessions. You can develop new habits and budgets that set you up for a debt-free future. And once the terms of your Consumer Proposal conclude, all debts are extinguished—move forward freely to improve your credit score.

Next Steps for Debt Relief

The benefits of a Consumer Proposal can clearly help most people stop the debt cycle. If you feel it is the right debt relief solution for you, here are some next steps to take:

• Evaluate and prepare: Compile your financial documents with details about your debt and assets. The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) has plenty of information, along with guides and resources from the Canadian Government. You’ll need this info when you visit an LIT.
• Contact an LIT: Only an LIT can administer Consumer Proposals. Do some research and contact a reputable BC trustee in your area. For a list of Canadian LITs, go to the official Government Licensed Insolvency Trustee Directory.
• Schedule a consultation: Meet with a trustee to discuss your debt. Your LIT can offer advice and can even suggest other debt-relief options. There are also eligibility requirements to consider for a Consumer Proposal (e.g. you are an individual and your total debts do not exceed $250,000 outside debts such as a mortgage secured by your principal residence).
• Prepare to file: If deemed the correct option, work with your LIT to file your Consumer Proposal.

Stop the Debt Cycle

A Consumer Proposal is a valuable tool for debt relief. But, it can be complex to file. If you need more information and Consumer Proposal help before you make any decisions, contact our team of LITs at Chase & Associates—we would be happy to talk with you and set up a (free!) meeting.