By Jasmin Brown, BDO Debt Solutions

BDO Debt Solutions

7 things you should know about a consumer proposal

Nov 17, 2020 | 10:15 AM

Have you heard of a consumer proposal? For people looking for a solution for insurmountable debt, a consumer proposal has become a common alternative to filing for bankruptcy. In simplest terms, a consumer proposal is a form of debt forgiveness. A Licensed Insolvency Trustee negotiates a legal settlement between you and your creditors that allows you to repay a portion of what you owe. In a consumer proposal, there is potential to significantly reduce what you have to pay to clear your unsecured debt load.

If you have the ability to repay some of your debt but not all and you want to keep your assets, a consumer proposal may be a great option for you. When you are experiencing signs of financial trouble and you are looking for answers, it is important to understand all debt solutions available to you. Here a 7 things you should know about a consumer proposal:

1. A consumer proposal is a legally binding debt solution for your unsecured debts.

An unsecured debt is a debt that is not backed by an asset. Examples of unsecured debts include credit card debt, a personal line of credit, personal loans, payday loans, income tax debt, etc. Student loans are also considered unsecured debt, however, there are some restrictions on the ability to discharge student loans, depending on how long you have been out of school. Secured debt, which cannot be included a consumer proposal, includes any debt that is tied to an asset, such as a mortgage, vehicle loan and home equity line of credit. You can choose to continue to pay your secured creditors to keep the asset, or stop paying and surrender the asset to the creditor.

2. You will not have to give up any of your assets in a consumer proposal.

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One aspect of a consumer proposal that has made it a growing alternative to bankruptcy is that you are able to keep your assets. When you file a proposal, you can keep your home or car, as long as you continue to keep up your mortgage and car loan payments during the consumer proposal process. You can also keep your investments, including your RRSP, RESP and TFSA.

3. Only a Licensed Insolvency Trustee is legally authorized to file a consumer proposal on your behalf.

A Licensed Insolvency Trustee (LIT) is an officer of the court, granted their license by the Office of the Superintendent of Bankruptcy. An LIT is the only professional authorized to administer a consumer proposal and bankruptcy for you. During an initial consultation, an LIT is obligated to explain all available debt solutions to you so that you have all the information you need to choose an option that works best for you.

4. When you file a consumer proposal, you will make one monthly payment with no additional fees.

Once your unsecured creditors have agreed on the terms of the proposal, you will begin making a monthly payment to your LIT for the term of your proposal. An LIT’s fee is included in the monthly consumer proposal payment. Your LIT is responsible for distributing your monthly payment among your unsecured creditors.

5. A consumer proposal legally protects you from your creditors.

If you have been dealing with insurmountable debt, you understand how stressful it can be when you can’t keep up with your payments. Late and missed payments can result in intimidating calls from collection agencies, snowballing interest charges and even wage garnishments. A consumer proposal is a debt solution that is authorized by the federal government, so when you file a proposal, you are legally protected under Canada’s Bankruptcy and Insolvency Act. Interest charges are frozen, wage garnishments end and creditors are no longer allowed to contact you. Both consumer proposals and bankruptcy are part of the Bankruptcy and Insolvency Act, and no other debt solution offers this legal protection.

6. A consumer proposal will affect your credit rating.

When you file a consumer proposal, both credit bureaus in Canada (Equifax and TransUnion) will be notified and a note will be added to your credit file. The consumer proposal will result in an R7 credit rating, which means that you have made a settlement with your creditors. The R7 rating will remain on your file until the proposal is completed, plus an additional three years. While you are paying off your proposal, your LIT will help you develop a strategy to rebuild your credit.

7. You can pay off your consumer proposal early.

There is no prepayment penalty fee for paying off your consumer proposal early. If you experience an increase in income or an unexpected financial windfall, and you want to pay off your consumer proposal early, there are a number of ways to do so. You can make a lump sum payment, change from monthly payments to bi-weekly or weekly payments, or you can choose to increase the amount of your monthly payment.

You can find additional information about consumer proposals, a debt repayment options calculator and informative blog posts on the BDO Debt Solutions website, or join us on Twitter and Facebook.

BDO Debt Solutions – 1-855-BDO-DEBT

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