Did you know that more than 1 million Canadians declare bankruptcy annually? Instead, they could have submitted a Consumer Proposal to avoid bankruptcy. And you may feel surprised to know that it works in more than half of such cases. Consumer Proposal is a form of debt relief option accessible to Canadian customers. Let’s take a deeper dive into consumer proposals and whether they are a good option or not.
What is Consumer Proposal?
A consumer proposal is an official, binding contract between you and your creditors. It gives you a certain amount of time, usually five years, to pay off your debts. However, you must consent to pay your trustee on a regular basis so that they can distribute the funds to your creditors.
Who can file a Consumer Proposal?
You must be an individual with at least $5,000 in unsecured debts (debts not backed by the property) to submit a proposal. Also, you cannot have declared bankruptcy within the last six years.
Benefits of filing the proposal
The fundamental advantage of submitting a Proposal is that you can avoid bankruptcy. Additionally, it lets you to:
- Pay off your debts gradually
- Maintain your assets
- Guard your credit score
- Reduce or eliminate interest and fees
- Work with your creditors to establish a repayment schedule that is affordable for you
- Avoid having your creditors take legal actions against you
- Seek assistance from a trustee who will oversee the procedure and bargain on your behalf
Disadvantages of filing the proposal
The biggest drawback of submitting a proposal is that you must pay your trustee on a monthly basis for five years. If your income is modest, this can be challenging. Furthermore, it’s possible that your creditors won’t accept the terms of your proposal. So, in that case, you’ll need to declare bankruptcy.
What is the proposal’s process?
The procedure will start after you have submitted the proposal. Then your trustee will send a copy of your proposal to your creditors. The application must be approved or rejected within 45 days. Moreover, you will need to file for bankruptcy if they reject it. On the other hand, the proposition will become enforceable if they accept it. After that, you must pay your trustee on a monthly basis for a period of five years. After five years, it will discharge your debts, releasing you from any financial obligations to your creditors.
Who is in charge of the proposal?
The administration of these Proposals is the responsibility of the Office of the Superintendent of Bankruptcy (OSB). The OSB, a federal organization, is in charge of regulating bankruptcy and insolvency in Canada.
Are there any restrictions on who can file a consumer proposal?
It’s true that there are some limitations on who can submit a proposal. You must be a person with unsecured obligations of at least $5,000. Moreover, you cannot have declared bankruptcy within the previous six years.
What is the proposal filing process?
The following is the procedure for submitting a proposal:
- Compile all of your financial data
- Fill out a form for a consumer proposal
- Select a time to meet with your trustee
- Send your creditors a copy of the proposal
- Await a response from them
Can I revoke it?
Yes, you can withdraw the proposal. You must file for bankruptcy if your creditors reject the offer. If they agree, you are still free to revoke the offer. However, doing so can have negative effects on your credit score.
Will I have to pay for filing the consumer proposal?
Yes, there are expenses related to submitting a bid. You’ll have to pay a monthly fee to your trustee, and then your trustee will divide and distribute among your creditors. Besides, you might also have to pay some legal fees and other administrative charges.
What is the processing time for this proposal?
Processing it often takes four to six months. However, if your creditors reject the plan or there are any challenges, the process can take longer.
What are the repercussions of not following the terms of the proposal?
In this case, your trustee may file a motion with the court to have your plan nullified if you don’t abide by its provisions. As a result, there will be bankruptcy proceedings as well.
So, is filing a consumer proposal a good idea?
Depending on your circumstances. Consumer proposals have several advantages. for example, the capacity to defer repayment of debt and preservation of credit standing. They do, however, have significant drawbacks, like the five-year commitment to monthly payments. Furthermore, the conditions of your creditors might not accept your proposal. In this case, you’ll have to file for bankruptcy. If you’re struggling to make a safe decision, you should consult Reynolds & Associates Inc. before making a choice to determine whether a consumer proposal is appropriate for you.