Is a consumer proposal worth it?

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A consumer proposal can safeguard assets while managing a steady income to meet fixed payments. It acts as a shield against creditors, but isn’t as swift as bankruptcy and impacts your credit for three years. It’s not a one-size-fits-all, so consider if it’s suitable for your financial situation. Consulting a Licensed Insolvency Trustee is advisable, but remember, not all trustees can be trusted. Trustees get paid by the lender and creditor and don’t advocate for Canadians in debt. Beware! Reach out if you have any questions.

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Consumer Proposal Worth Question

Is a consumer proposal worth it? I’m trying to figure out if this is a good option for getting out of debt or if the drawbacks outweigh the benefits.

From: Anonymous Question
Location: Waterloo, Ontario (ON)
Category: consumer proposal

Consumer Proposal Worth Answer

A consumer proposal can be a solid route for those looking to protect significant assets while maintaining a steady income to handle fixed monthly payments. Think of it as a lifeline that lets you hold onto your valuable possessions, cut down on your debt, and enjoy a nice shield from creditors—so no more persistent collection calls once your proposal gets the green light. On the flip side, it isn’t the speediest process compared to bankruptcy and it leaves you with a stubborn R7 credit mark that hangs around for three years, possibly causing a few hiccups in future financial fun. It’s super important to do a bit of soul-searching on your financial situation because consumer proposals aren’t a one-size-fits-all, especially if you’re navigating life with a tight budget and minimal assets.

Whether a consumer proposal is your best bet really boils down to your particular set of circumstances, like the mountain of debt you’re facing, your income stability, and the assets you want to guard. For those who can stick to the plan and enjoy the benefits, it’s a juicy alternative to bankruptcy. It’s wise to buddy up with a Licensed Insolvency Trustee for trustworthy advice tailored to your financial puzzle. But remember, Trustees get paid by the lenders and creditors and don’t advocate for Canadians in debt. LITs can also double bill you or charge you extra. Beware! Reach out via phone, text, or live chat if you have any questions.

From: Insider Adam

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal can be a worthwhile option for getting out of debt, particularly if you are seeking to avoid bankruptcy. The key benefits include:

1. Protection from Creditors: A consumer proposal allows you to negotiate a reduced repayment amount, typically offering to pay back a portion of your debts over a set period, while protecting you from creditor actions, such as wage garnishments or collection calls (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 50.6).

2. Lower Financial Burden: It can provide a lower monthly payment compared to the original debt obligations, making it easier to manage your finances without the extreme consequences of bankruptcy (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.34).

3. Impact on Credit Rating: While your credit will still be negatively affected, the impact is less severe than declaring bankruptcy. A consumer proposal will remain on your credit report for three years after completion, compared to six to seven years for bankruptcy (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 68).

However, there are drawbacks to consider:

1. Duration: You will be required to make payments for a minimum of three years, which can be a long commitment (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.34(2)).

2. Not All Debts Are Included: Certain debts, such as student loans (if you have been out of school for less than seven years) and child support obligations, may not be discharged through a consumer proposal (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 121).

3. Legal Fees: There may be costs associated with setting up and managing the proposal, including fees for the administrator (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 62).

In summary, while a consumer proposal has distinct benefits, such as reduced payments and creditor protection, it does have limitations and requires careful consideration of your personal financial situation.

From: OSB Helper

Related Questions to Consumer Proposal Worth It

Here are the top 5 most frequently asked questions related to the query “Is a consumer proposal worth it?” based on common concerns and trends in the context of Canadian debt and insolvency:

1. How does a consumer proposal affect my credit rating?

A consumer proposal will result in an R7 credit rating that remains for 3 years after completion.

2. What are the differences between a consumer proposal and bankruptcy?

A consumer proposal allows you to keep your assets and make fixed monthly payments, while bankruptcy involves surrendering non-exempt assets and potential surplus income payments.

3. Can I keep my house in a consumer proposal?

Yes, you can keep your house as long as you maintain your mortgage payments.

4. How long does a consumer proposal take to complete?

A consumer proposal typically lasts up to 5 years, but you can pay it off early if your financial situation improves.

5. What happens if my creditors reject my consumer proposal?

If creditors reject your proposal, your trustee can help negotiate new terms or explore other options like bankruptcy[2][4][5].

If you have a question about debt see our debt questions or ask your own debt related question.

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