Common FAQs on Consumer Proposals Explained

Understanding Consumer Proposals: Common FAQs Explained

A consumer proposal is a legal process administered by a Licensed Insolvency Trustee (LIT) designed to help individuals struggling with debt to make a compromise with their creditors. This can be a viable alternative to bankruptcy for those looking to manage their debt more effectively. Below, we address some of the most common questions related to consumer proposals to provide clarity on how they work, their benefits, and their impacts.

What is a Consumer Proposal?

A consumer proposal is a formal, legally binding process that allows you to consolidate your debts and make a single monthly payment that is affordable for you. It is negotiated with your creditors by a Licensed Insolvency Trustee, who acts as the proposal administrator. The terms typically result in creditors agreeing to accept a percentage of what is owed to them, with the remainder of the debts being forgiven once the proposal terms are successfully completed.

How Does a Consumer Proposal Affect My Credit?

Entering into a consumer proposal will affect your credit score, with the impact being noted as an R7 rating on your credit report, indicating that you entered a debt settlement program. This rating remains on your credit report for three years after you complete the proposal terms. While this may seem daunting, it’s important to remember that the impact on your credit score is usually less severe than that of declaring bankruptcy. Moreover, as you demonstrate consistent, on-time payments through the proposal, you can start to rebuild your creditworthiness.

What Debts Can Be Included in a Consumer Proposal?

Most unsecured debts, such as credit card debt, personal loans, lines of credit, and certain tax debts, can be included in a consumer proposal. However, it’s important to note that secured debts, like mortgages on a home or car loans, cannot be included. Additionally, debts such as alimony and child support payments, fines, and penalties ordered by the court are not eligible to be discharged through a consumer proposal.

How Long Does a Consumer Proposal Last?

The duration of a consumer proposal can vary depending on the specific terms agreed upon with your creditors. However, by law, a consumer proposal cannot exceed five years. During this time, you will make fixed payments to your trustee, who then disburses the funds to your creditors. This simplifies your debt repayment and makes managing your finances easier.

Can a Consumer Proposal Be Cancelled?

Yes, a consumer proposal can be cancelled if you fail to make your payments as agreed. Typically, if you miss three payments, your proposal may be annulled, which would allow your creditors to pursue you for the full amount of your debts once again. It’s crucial to communicate with your Licensed Insolvency Trustee if you’re facing financial difficulties to explore possible solutions and avoid cancellation.

What Happens After Completing a Consumer Proposal?

Upon successful completion of your consumer proposal, you will be released from the debts included in the proposal. You will also receive a Certificate of Full Performance from your trustee, and the credit bureaus will be notified of your proposal’s completion. From there, you can start rebuilding your credit and working towards a stronger financial future. It’s also an opportunity to reflect on financial habits and make necessary changes to avoid future debt problems.

Conclusion

A consumer proposal can be a lifeline for those overwhelmed by debt, offering a structured path to financial recovery. Understanding the details and responsibilities involved is crucial before pursuing this option. If you’re considering a consumer proposal, speaking with a Licensed Insolvency Trustee can provide tailored advice and help you determine if it’s the right choice for your financial situation.