Is a Consumer Proposal the same as a Consolidation Loan?
Bankruptcy may get a bad rap for being a strict process, but at least it has a rap to speak of. Bankruptcy’s not-so-distant cousin, the consumer proposal, often isn’t spoken of at all.
A consumer proposal may actually help you avoid bankruptcy. We recommend familiarizing yourself with the consumer proposal process. It is also a good idea to review this option with a licensed insolvency trustee. In the meantime, here are 5 questions you should ask about consumer proposals.
1. Is Your Budget a Good Consumer Proposal Fit?
If you are considering a consumer proposal, your budget is a good place to start. How much do you think you can afford to spend on debt repayment each month? Review your income and expenses with a Licensed Insolvency Trustee. Make adjustments to your expenses if you need to and see if it is possible to free up enough money to offer a regular payment towards a consumer proposal. If you think you will be able to afford to offer a deal to your creditors, a proposal may be the right debt solution for you.
2. Is a Consumer Proposal Better Than Bankruptcy?
Consumer proposals are not “better” than bankruptcy, they are just different. For example, bankruptcy is much stricter than a proposal and requires regular reporting of your income and expenses. The proposal process is subject to fewer rules and conditions. However, consumer proposals generally take much longer to complete and cost more than bankruptcy. A consumer proposal is a little “better” with regard to your credit score. Bankruptcy scores an “R9” on Equifax and Transunion reports and this is the end of the rating scale. A consumer proposal is an “R7” rating and or a bit of an improvement in exchange for the effort of repaying a portion of what you owe..
3. Will Your Creditors Accept a Deal?
Creditors have 45 days to vote on a consumer proposal and during this time they can accept, counter offer or reject your deal. We review who you owe money to and have experience with how these creditors generally vote in most cases. Every dollar owed to a creditor is equivalent to one vote in your proposal. If a creditor has more than half of the dollars owed – the “votes” – it is important to pay attention to how they vote. A creditor with the majority of votes may be in control of whether or not your proposal is accepted. Many proposals are accepted as filed or negotiated via counter offers. If you are not comfortable with a counter offer you are welcome to respond to it with your own counter offer and try to come to a mutual agreement.
4. How Long Will a Consumer Proposal Take?
The maximum payment arrangement allowed under the Bankruptcy and Insolvency Act is 5 years (60 months). Creditors cannot ask you to extend your offer beyond this timeframe. Your creditors cannot You always have the option of accelerating payments and paying off the proposal early if you can afford to.
5. Why Choose a Consumer Proposal Instead of a Bankruptcy?
The most common reasons for selecting a consumer proposal instead of a bankruptcy are assets, income and current employment or past history. While your assets vest with your LIT during a bankruptcy, they are of no consideration in a consumer proposal. In a bankruptcy, if you earn more money it is likely that you will pay more for your bankruptcy. Once the voting period ends the amount you pay is fixed. You can earn extra income and not be subjected to any penalties. Some employment situations will mean that you cannot be bankrupt but you can file a consumer proposal.
If you’ve been bankrupt before, a proposal may be a better solution. The bankruptcy itself will be longer (expect a term of 24 months – 36 months if your income is good). Your credit report will display the information for a longer time. A penalty of 14 years of reporting will apply. Conversely, a consumer proposal will disappear from your report approximately 3 years after you make your final proposal payment.
If you think that a consumer proposal may be the right direction for your path to debt freedom, we can help. Call a Spergel LIT today, 310-4321 for a free consultation and review your potential offers for affordability. Give us a time with your budget and we’ll help you decide if a consumer proposal will work for you.