A consumer proposal is a legal arrangement you make with your creditors to repay a portion of what you owe under the Bankruptcy and Insolvency Act. Filed by a licensed insolvency trustee, sometimes called a consumer proposal administrator, it consolidates all your unsecured debts into one affordable monthly payment.
Debt relief through debt consolidation
To ensure that the proposal is fair to both you and your creditors, it must include all of your unsecured debts. Although this requirement is to ensure that no party receives preferential treatment over the other, it also offers debt relief through debt consolidation.
To determine your monthly payments, your trustee will calculate what your creditors could expect to receive if you were to file bankruptcy. They will then suggest an amount that is affordable for you while offering your creditors more money than what they would receive if you did file bankruptcy.
Better than a debt management plan or a consolidation loan
A debt management plan is an informal arrangement with your creditors to repay your debts through a non-profit credit counselling agency. Generally, interest is either reduced or forgiven during the repayment plan. While this may offer some interest relief and combine your debts into one payment, it does not offer any debt relief or creditor protection.
A consolidation loan merges your various debts into one monthly payment by taking out a new loan to pay off the outstanding balances on your other loans and debts. Although this combines your payments in one, it does not provide any interest relief or debt relief. In fact, if you have a poor credit score, you may be charged a high interest rate, or denied for the loan.
While a consumer proposal pools your unsecured debt into one manageable monthly payment, it also helps you get out of debt sooner because a consumer proposal provides interest relief and debt relief. Proposals settle debts for a fraction of what is owed and Interest stops accruing the moment you file, offering you a chance at a fresh financial start.
Better than a debt settlement plan
A debt settlement plan is an informal arrangement that a debt consultant makes with your creditors to settle your debts for pennies on the dollar.
Generally, the debt consultant advises you to stop making payments on your debts and to start setting money aside into an account. They will then wait until you have enough money in your account to offer your creditors a one-time settlement.
On the outside, debt settlements look similar to consumer proposals. But they differ in many ways. First, debt settlement companies are not regulated by the government. That means the strict rules and laws that licensed insolvency trustees must follow to ensure that the process is fair, do not apply to the debt consultants. They can charge fees upfront or charge a referral fee. And debt consultants usually do before they have settled any debts.
They also cannot offer you legal protection from your creditors. While you are putting money aside, waiting for the amount to accumulate, your creditors will actively pursue you for payment. They will send your delinquent accounts to collections and possibly, sue you or garnishee your wages.
In contrast, consumer proposals offer you legal protection from your creditors the moment you file through a stay of proceedings. Your creditors are not able to sue you or garnishee your wages, and they must stop their collection calls.
There are a few ways you can consolidate your debts. Depending on your finances and your goals, a debt management plan or a consolidation loan may be a good option for you. Avoid debt settlement companies – they charge exorbitant fees and their method of debt relief leaves you far too exposed to the legal action of your creditors.
If you do not think you will be able to repay your debts within five years, meet with a licensed insolvency trustee to learn more about consumer proposals. A proposal will consolidate your unsecured debts while offering you legal protection of your creditors, interest relief, debt relief, and a fresh start to rebuild your finances.