Are you facing bankruptcy due to unsecured debt? Before taking action, a consumer proposal may be the better option. Consumer proposals are not a commonly known option, but it can offer a way to get control of debt again. Below we will discuss what consumer proposals are, how they work, and how it will impact a credit score.
Consumer proposal is a process of settling debt through an arrangement where you agree to repay a lower amount than owed. This process must be filed with a licensed Insolvency Trustee, but filing a consumer proposal can save large amounts. Depending on your situation, you may save up to 70% to 80% of your current owed debt. Furthermore, when you make payments as agreed, you will be able to retain all assets while reducing your debt.
The consumer proposal is legally binding, therefore upon being filed and accepted all interest on current debts will be frozen. In addition, it will stop all wage garnishing and collection calls.
Not Required to Pay Total Debt Owed?
It is possible to work out an agreement for partial payment of total owed debt. The Licensed Insolvency Trustee can assist you in deciding the best proposal to offer creditors. The proposal includes your offer amount to pay off the creditors part of the owed debt, extend repayment period, or in some cases both. However, consumer proposals may not be extended past five years.
To increase the potential of your consumer proposal being accepted, it is recommended a Licensed Insolvency Trustee is consulted.
How Will a Consumer Proposal Affect My Credit Report?
There is a good reason that consumer proposals are uncommon, and usually the last option used. When filing, you will be assigned the lowest credit rating possible. This will remain on your credit history for three years after you’ve paid off the debt. Therefore, if you take four years to repay the debt, your credit report will show the consumer proposal for 7 years from acceptance. This makes reviving your credit score will be expensive and difficult.
Alternative Debt Solutions
When faced with bankruptcy, the important thing is not to panic as there are multiple options for debt settlement. Alternative debt solutions should be considered first, including debt management, debt settlement, and debt consolidation. However, consumer proposal can help as a last resort.
Bankruptcy is an alternative to filing a consumer proposal, but it is important to understand the difference between the two options. Both consumer proposal and bankruptcy will have major impacts on your credit.
One advantage of going with a consumer proposal, rather than bankruptcy includes being able to retain your assets. Additionally, some industries require you to announce going bankrupt.
How a Consumer Proposal Administrator Can Help
Using a Consumer Proposal Administrator when filing a consumer proposal, you get protection from the creditors right away. All of the calls will stop, and wage garnishing will cease.
Wanting to learn more about filing a consumer proposal or find out if an alternative option is best for you? Contact us, we will have a financial professional reach out to you to help determine your next step.