Consumer Proposal
Question: How does a consumer proposal affect a debtor’s future when accepted? Does it affect your future like someone who’s gone bankrupt?
Answer: Once a consumer proposal is accepted by the creditors, the creditors cannot take you to court, sue you, or garnishee your wages. Once you have completed all of the payments and the proposal is completed, your debts are legally eliminated.
Unlike in a bankruptcy, once the consumer proposal is accepted, the payments you are required to make in the consumer proposal are fixed; they don’t change. That’s good, because you know exactly what you are required to do to eliminate your debts. In a debt consolidation loan with a line of credit, the interest rate may change, so your payments may change. In a bankruptcy, the payment you make each month is based on your surplus income, so if your income increases, your payment increases. A fixed payment is a big advantage of a consumer proposal.
Another advantage of a consumer proposal is that you don’t lose your assets, such as a house, car or RRSP. In a bankruptcy if there is equity you may lose some of your assets.
According to Equifax, Canada’s largest credit reporting agency, a consumer proposal is reported as an R7 (perfect credit is R1), and remains on your credit report for 3 years after the payments are completed. A bankruptcy is coded as an R9, and remains on your credit report for six years from the date of discharge. Since a normal first bankruptcy lasts for 9 months, that means it’s on your credit report for about 7 years. If the proposal payments last for 4 years, the proposal is also showing on your credit report for 7 years, so in that respect a proposal and a bankruptcy are similar.
To decide whether you should file a proposal, a bankruptcy, or some other option, you need to consider all of the costs and implications. A licensed trustee can provide you with a free consulation to review all of your options.