Introduction

If you are exploring debt relief options in Canada, you might find yourself asking, What is a consumer proposal? Understanding this financial solution can help you determine if it’s the right step towards managing your debt.

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement in Canada between you and your creditors to settle your debt for less than the full amount owed. It is a viable alternative to bankruptcy and offers a structured way to repay your debts over a specified period, typically up to five years.

How Does a Consumer Proposal Work?

When you file a consumer proposal, you propose a plan to pay a portion of your debt, freeze interest charges, and extend the repayment period. This plan must be approved by the majority of your creditors. Once accepted, you make regular payments to a Licensed Insolvency Trustee (formerly known as a bankruptcy trustee), who then distributes the funds to your creditors.

Benefits of a Consumer Proposal

Choosing a consumer proposal offers several benefits:

• Avoid Bankruptcy: It is an alternative that allows you to avoid the more severe consequences of bankruptcy.
• Debt Reduction: Often, you repay only a portion of the total debt, giving you significant financial relief.
• Asset Protection: Unlike bankruptcy, you retain ownership of your assets such as your home or car.
• Frozen Interest: Interest on your debts stops accruing once the proposal is filed.
• Legal Protection: Your creditors are legally bound to the terms of the proposal, and they cannot continue collection actions.

Who Can File a Consumer Proposal?

Any individual with unsecured debts ranging from $1,000 to $250,000 (not including the mortgage on their principal residence) can file a consumer proposal. It’s particularly suitable for those who have a steady income and can manage monthly payments but need relief from overwhelming debt.

Steps to Filing a Consumer Proposal

1. Consult a Licensed Insolvency Trustee: The first step is to meet with a trustee who will assess your financial situation.
2. Prepare the Proposal: The trustee will help you draft a proposal outlining how much you can afford to pay and over what period.
3. Submit the Proposal: The proposal is submitted to your creditors for consideration.
4. Creditor Approval: Creditors have 45 days to accept or reject the proposal. If the majority agree, it becomes binding.
5. Make Payments: You begin making regular payments as per the agreed terms. The trustee manages and distributes these payments.

Conclusion

Understanding what a consumer proposal is can be the first step in regaining control over your finances. This debt solution offers a practical, less extreme alternative to bankruptcy, protecting your assets while providing debt relief. If you’re considering a consumer proposal, consult a Licensed Insolvency Trustee to explore this option further and take a step towards financial stability.

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