What is a Consumer Proposal?

Credit Counseling

Times are tough and many Canadians find themselves unable to pay all their bills every month, often through no fault of their own.  Some feel bankruptcy is their only option, which is simply not true.

The facts are you have several options available to you if you are in trouble, one of which is a Consumer Proposal.  This alternative has only been around for about 15 years as an amendment to the Bankruptcy and Insolvency Act.  As a consequence, many Canadians are completely unaware of its existence and its benefits.

To explain what a Consumer Proposal is, let’s contrast it with another approach with which you may be familiar – a Debt Management Plan.

Unless you’ve been residing in a cave or a deep forest with no access to television, you’ve seen the ads from credit counseling agencies offering debt relief solutions.

In most cases they’ll put you in a Debt Management Plan and here’s how it works.  They let your creditors know you’re having trouble and will now be making monthly payments directly to them, not to the creditor.  Over time, the credit counseling agency will pay back the full amount you owe each creditor.  Typically, the creditor’s close your account and freeze the interest rate.

The advantage to them is they collect their money, even though it takes longer.  They don’t want you to go into bankruptcy, where they will get little, if anything.  The advantage to you is you can reduce your total monthly payments to your creditors to a single, affordable payment you make to the credit counselors.

This will negatively affect your credit rating somewhat, but the bigger disadvantage is it has no legal standing.  Creditors can change their minds and you can continue to receive garnishment threats and threats of lawsuits.

A Consumer Proposal is similar in concept, since you will be making a single, reduced payment, but you will not be paying back all you owe.  As an example, with a Debt Management Plan, a creditor owed $5,000 will get paid back 5,000, plus interest.

But with Consumer Proposals, your representative negotiates a lower amount, which could be anywhere from 40% to 60% of the original debt.  So a $5,000 debt may become a $2,500 or $2,000 debt.

The other advantage of a Consumer Proposal is legal protection.  Once a Proposal is agreed to, collection calls and attempts to garnish wages and file lawsuits will stop.

To determine whether or not your situation qualifies for a Consumer Proposal you will need to meet with a licensed Bankruptcy Trustee.  They are professionals in the field of debt solutions, and they undergo a rigorous training and licensing procedure established by the Federal government.

Some people are reluctant to seek help from a professional whose title includes the dreaded word “bankruptcy”.  However, they are the most qualified sources you can find to help you sort through the different debt solution options available to you.

Trustees are fully aware of Debt Management Plans, Debt Consolidation Loans, Consumer Proposals, and Personal Bankruptcies.  They will evaluate your personal situation and help you get into the solution that best meets your need.