A consumer proposal is a formal, government-approved debt settlement process that can help you get out of debt and avoid bankruptcy. It’s a type of insolvency proceeding that is an alternative to bankruptcy. Under the proposal, you make a one-time payment or series of payments to your creditors over a set period of time (usually three to five years). In return, your creditors agree not to take any legal action against you, such as wage garnishment or seizure of assets.
Here are 6 things you need to know about consumer proposals:
1. You Must Be Insolvent to Qualify
To be eligible for a consumer proposal, you must be insolvent. This means that you are unable to pay your debts as they become due and owing. If you are able to make your regular debt payments but are only making the minimum payments, you are not considered insolvent.
For example, let’s say you have $50,000 in unsecured debt, such as credit card debt, personal loans, and lines of credit. Your monthly minimum payments are $1,500. Even though you can’t pay off your debt within a reasonable period of time if you only make the minimum payments, you would not be considered insolvent. This is because you are able to make your regular debt payments.
2. You Must Have a Valid Reason for the Proposal
There must be a valid reason for the proposal. The most common reasons include:
•You have suffered a financial hardship, such as a job loss or illness
•Your debts are significantly more than your assets and income
•You have been unsuccessful in your attempts to repay your debts through a debt consolidation loan or other means
Keep in mind that your creditors will review your reason for the proposal and may object if they feel that it is not valid. In this case, the proposal will not be approved.
3. How Can It Help You
If you are struggling to repay your debts, a consumer proposal can help you get out of debt and avoid bankruptcy. As seen at https://debt.bot/consumer-proposal-alberta/, as part of this agreement, you can freeze interest, stop collection calls, and reverse wage garnishment. This will give you time to catch up on your payments and get your finances back on track.
For example, let’s say you have $50,000 in unsecured debt and your monthly minimum payments are $1,500. If you enter into a consumer proposal, you would make a one-time payment of $25,000 over a period of five years. This would save you $10,000 in interest and fees.
Additionally, a consumer proposal can help improve your credit score. This is because the debt will be reported as “settled” on your credit report, which is better than “unpaid” or “in collections.”
4. The Process Takes Several Months
The consumer proposal process takes several months from start to finish. Once you’ve filed your paperwork with a licensed insolvency trustee, they will send a notice to your creditors. Your creditors then have 45 days to object to the proposal. If there are no objections, the proposal is deemed to be accepted and you can begin making payments.
5. You Will Need to Make Payments
If your consumer proposal is approved, you will need to make payments to your trustee. These payments will be used to pay off your creditors. The amount you need to pay will depend on several factors, including the total amount of debt, your assets, and your income.
You will also be required to attend two mandatory counseling sessions with a licensed insolvency trustee. These sessions are designed to help you understand the consumer proposal process and to develop a budget.
6. There Are Risks Involved
While a consumer proposal can help you get out of debt, there are risks involved. For example, if you miss a payment, your proposal can be canceled and you may be required to pay the full amount of your debt plus interest and fees.
Additionally, a consumer proposal will stay on your credit report for three years after the date of discharge. This can make it difficult to obtain new lines of credit.
7. You May Need to Hire a Lawyer
If you are considering a consumer proposal, you may need to hire a lawyer. This is because the process can be complex and there are a number of legal implications. A lawyer can help you understand the process and make sure that your rights are protected.