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How Does a Consumer Proposal Work with the CRA?

A detailed illustration showing a professional financial advisor explaining the steps of a consumer proposal to a client, with a backdrop of Canada Revenue

Understanding How a Consumer Proposal Works with the CRA

Dealing with mounting debt can be a daunting experience, especially when it involves debts owed to the Canada Revenue Agency (CRA). One of the most effective strategies to manage this type of financial strain is through a consumer proposal. This article aims to explain how does a consumer proposal work with the CRA and how it can offer a fresh start for Canadians facing financial hardships.

What is a Consumer Proposal?

A consumer proposal is a legally binding agreement arranged between you and your creditors to repay a portion of your debt. This agreement is facilitated by a Licensed Insolvency Trustee (LIT), allowing you to make manageable monthly payments over a maximum of five years. Notably, a consumer proposal can significantly reduce your overall debt, providing much-needed relief.

The Role of the CRA in Consumer Proposals

The CRA, like any creditor, plays an important role when you file a consumer proposal. If you owe taxes, they will be included in the total debt covered under the proposal. Understanding how does a consumer proposal work with the CRA is vital, as tax debts can substantially impact your financial situation.

Filing a Consumer Proposal with the CRA

The process of filing a consumer proposal involves several critical steps:

  • Consult a Licensed Insolvency Trustee (LIT): The first step is to meet with an LIT who will review your financial situation and advise if a consumer proposal is the best option for you.
  • Draft the Proposal: Your LIT will help you draft a proposal that outlines how much you can afford to pay each month. This proposal is then presented to your creditors, including the CRA.
  • Creditor Vote: Once submitted, your creditors have 45 days to accept or reject the proposal. For it to be accepted, more than 50% of the dollar value of the voting creditors must agree.
  • CRA’s Acceptance: If the CRA is a substantial creditor, their acceptance can significantly influence the outcome. They generally agree to proposals that offer realistic repayment plans.
  • Approval and Repayment: Upon acceptance, you begin making monthly payments as specified in the agreed proposal. Throughout this period, the CRA and other creditors cannot pursue further legal actions against you.

Benefits of a Consumer Proposal with the CRA

Filing a consumer proposal with the CRA offers numerous advantages:

  • Debt Reduction: Often results in a considerable reduction of the total debt owed.
  • Legal Protection: Provides legal protection from further collection actions by the CRA and other creditors.
  • Controlled Payments: Enables you to make affordable monthly payments without accruing additional interest.

Conclusion

Understanding how does a consumer proposal work with the CRA is crucial for Canadians seeking debt relief. By working with a Licensed Insolvency Trustee and crafting a feasible repayment plan, you can negotiate a reduction in your debt and regain financial stability. If you find yourself struggling with debts owed to the CRA, consider a consumer proposal as a viable solution to manage and overcome your financial challenges.

For more advice and assistance on filing a consumer proposal, consult a Licensed Insolvency Trustee to explore your options and take the first step towards financial freedom.

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