It can seem impossible to pay down a large debt or a high interest loan. If you have financial difficulties and need to reduce your debt, there are a few options available to you.
Here are four options that can help you get control of your debt:
- Credit Counseling,
- Debt Consolidation,
- Bankruptcy (for Bankruptcy Barrie information, please follow the link) or a
- Consumer Proposal (The preferred option by Canadians).
Each option has advantages and disadvantages. However, the option being chosen by a large number of Canadians is to filing a consumer proposal in Ontario. This is because a consumer proposal offers a number of significant advantages.
Consumer Proposal is a formal procedure which is regulated by the government. Under a consumer proposal, you submit an offer to your creditors, promising to pay them a portion of what you owe. In return, they will consider your debt paid in full. This means that, if your creditors accept the offer, your debts are effectively reduced to the amount that you have offered and was agreed upon.
Why Would Your Creditors Accept a Consumer Proposal?
In a consumer proposal, the amount you offer is determined by your unique circumstances. The following will be considered:
- your total debt,
- your after tax income,
- your number of dependents,
- your monthly living expenses, and
- the amount that your creditors could have received in a bankruptcy situation.
Since this information is used to generate your offer, creditors generally decide that the offer is fair and that it is likely more than they would receive if you declared bankruptcy. In addition, your creditors will also consider the savings of accepting your proposal versus pursuing collections or legal action.
The Benefits to You of Consumer Proposal
In a consumer proposal, you are able to retain all of your assets, including your house, car and any RRSPs or RESPs.
- A consumer proposal is an affordable option. The amount you pay can be split into a maximum of 60 monthly payments. This allows you to fit your payments into your budget and helps you avoid additional money problems in the future.
- With a consumer proposal all legal actions and wage garnishments against you come to an end. Anyone making such claims against you is legally obliged to desist. Many of other debt relief options do not provide this benefit. With other forms of debt management, you need to negotiate with each and every legal claim individually.
- You will no longer have to deal with creditors. Collection calls will stop and your only responsibility is to make the agreed monthly payments.
- For many people, a consumer proposal may be a better option than bankruptcy. However, each individual case is unique. However, the majority of people are now choosing consumer proposals in Ontario rather than filing for bankruptcy. For more information, please contact our bankruptcy trustees for advice based on your specific situation.
How to file a Consumer Proposal
If you have done your research and consultation and you feel that a Consumer Proposal is the appropriate solution for you, the next step is to speak with a certified consumer proposal administrator who is also a Trustee in Bankruptcy. These are the only individuals who are licensed by the government to administer consumer proposals in Canada. It is important to note that consumer proposals cannot be administered by debt counselors, credit counselors or companies that provide consolidation loans. When you first meet with the Bankruptcy Trustee, the trustee is legally bound to review all options that are available to you in order to determine that a consumer proposal is actually the right solution for everyone involved. This means that it is right for both you and your creditors. The Bankruptcy Trustee reviews your situation and uses details such as the nature and amount of your unsecured debts, your income and your realistic monthly living expenses to fully understand your position. The trustee will then use the money you have left over after paying your bills as the basis of the offer to your creditors.
The trustee will then prepare the documentation and send your offer to your creditors to consider. If the majority of the creditors accept the proposal then it is considered to be accepted and all of them. At this point, the benefits described above (creditor protection, keeping ownership of your house and automobiles) will apply. From our experience, more than 95% of proposals are accepted by creditors.
This is because, if your proposal is fair, the creditors are motivated accept it since the alternative is often you declaring bankruptcy. In this situation the creditor risks getting nothing at all.
After the proposal is accepted, your main responsibility becomes making the agreed-upon monthly payments on time.
In addition, you must attend two financial counselling sessions provided by the Bankruptcy Trustee. These will help you avoid financial problems in the future,
Once you have met these requirements and made your payment (typically around five years) you will be officially discharged and the balance of your debts will be forgiven
For more specific answers regarding the consumer proposal process and how it might help you, please speak with our licensed bankruptcy trustee in the Barrie, Ontario area.