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How Does a Consumer Proposal Help You Resolve Your Debt?

Debt can feel overwhelming. If you are having trouble paying credit card debt, payday loans, lines of credit, or personal loans, you may be wondering about options such as bankruptcy, a consolidation loan, or a consumer proposal. Vancouver debt solution professionals can review your financial situation to determine which of the many options is best for you. While bankruptcy can offer a fresh start if you are under a large amount of debt, it is typically used as a last resort due to the damage it causes to your credit rating and the possibility of losing assets. For many people, a consumer proposal is an ideal alternative to bankruptcy that helps eliminate consumer debt while offering some key advantages. Here is how a consumer proposal can help you resolve your debt.


Vancouver Debt Solution: What is a Consumer Proposal?

Vancouver Licensed Insolvency Trustees at Crowe MacKay & Company have previously discussed some consumer proposal basics such as how a consumer proposal differs from bankruptcy. A consumer proposal is a flexible and customizable option, permitting you to eliminate almost all unsecured debt (examples of “non-dischargeable” debts that survive a consumer proposal include child support or spousal support arrears, and certain student loans). Once accepted, a consumer proposal will consolidate your debt, allowing you to make smaller payments than what you owe, giving you more time to pay off what you owe (or both) in exchange for full debt forgiveness after the proposal payments have been made.

How Does a Consumer Proposal Help You Resolve Your Debt?

A consumer proposal can give you the breathing room you need to rebuild your financial position. There are significant advantages to consumer proposals. Here are some of the key benefits and ways a consumer proposal can help to resolve your debt:

  • If a majority of your unsecured creditors accept your proposal, it is legally binding on all of your unsecured creditors (even those that voted against your proposal or that did not vote).

  • Once your consumer proposal is filed, all collection actions against you must stop. That means no more calls from collections agencies. Your creditors must deal with the proposal administrator, not you directly.  

  • Any lawsuits brought against you in connection with debt owing to certain creditors are stayed (in other words, lawsuits by creditors are not allowed to proceed).

  • All of your unsecured debt is consolidated into one monthly payment, typically made over a term of three to five years.

  • The monthly payments under a consumer proposal will in most cases be a fraction of the total amount that you owe, depending on your personal circumstances and what you can afford to repay.

  • Interest stops accruing on your outstanding debt (i.e., no additional interest is charged).
    Wage garnishment is stopped (other than garnishment involving child support and spousal support).

  • You are permitted to keep assets such as your car and your home. Mortgages and most vehicle loans are held by secured creditors. Consumer proposals do not settle secured debts, so if you continue making your mortgage and car loan payments during the term of your consumer proposal, you can retain those assets.
  • Your credit report will be impacted by a consumer proposal, but not as severely as with a bankruptcy. Credit bureaus use an R1 to R9 scale. A consumer proposal shows as an R7 on your credit report, which indicates that you compromised or settled your debts. A bankruptcy results in a credit rating of R9 (the lowest possible credit score).

  • You can start rebuilding your credit score during the term of your consumer proposal (for example, by obtaining a secured credit card to use).

  • A consumer proposal can be paid off early. During the term of your proposal, if you have enough to pay out the remaining amount owing on your proposal, you can do so without a penalty or interest charges, which allows you to repair your credit even faster.

  • Once you make the final payment under your consumer proposal, a Certificate of Full Performance is issued which officially releases you from the obligation to repay the remaining balance of all debts settled in your consumer proposal.

  • The record of the consumer proposal will remain on your credit report for 3 years after your final payment, whereas the record of a bankruptcy will remain on your credit report for 6 years after you are discharged (if it is your first bankruptcy).

It is worth noting that in addition to giving you debt relief and the opportunity for a fresh start, creditors often prefer a consumer proposal over a bankruptcy because a creditor will be paid more of the debt owing to them pursuant to a consumer proposal. At the end of the day, whether a consumer proposal is right for you depends on your personal circumstances, so you should discuss the pros and cons of a consumer proposal with a Vancouver licensed insolvency trustee.

Are You Looking for Debt Solutions in Vancouver or Elsewhere in the Lower Mainland?

The Licensed Insolvency Trustees at Crowe MacKay & Company are here to provide you with debt solutions. Vancouver, Burnaby, and Surrey office appointments are available, as are virtual appointments. Not everyone’s debt is the same which means that the debt solution for one person may not be right for you. Our professionals will work with you to explore all the pros and cons of each debt solution option. Depending on a variety of factors such as how much you owe, the size of your household and your monthly income, we can recommend the best option for you. To get started, please fill out our Debtor Application Form or call or email to schedule your appointment today.