Is consumer proposal worth it?

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Thinking about tackling unsecured debt without hitting bankruptcy? A consumer proposal might be your ticket, letting you keep assets and reduce debt up to 70-75%. Enjoy one fixed monthly payment and no more creditor calls! But, your credit score takes a hit (R7) and some debts aren’t included, so weigh the pros and cons!

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Consumer Proposal Question

Is consumer proposal worth it? I’m considering a consumer proposal but want to know if it’s a good option for dealing with debt. What are the pros and cons?

From: Anonymous Question
Location: Winnipeg, Manitoba (MB)
Category: consumer proposal

Consumer Proposal Answer

Thinking about tackling your unsecured debt without hitting bankruptcy? A consumer proposal might just be your ticket. It’s a nifty way to keep your assets while slimming down your debt, often slashing what you owe by a whopping 70-75%. Plus, you get to roll everything into one easy, fixed monthly payment. Say goodbye to those pesky creditor calls and wage garnishments! Not to mention, it hits the pause button on interest rates, spreading your payments over a comfy time frame of up to five years. And once it’s sealed and delivered, your creditors have to play by the rules, giving you some much-needed breathing room to sort out your finances.

But hey, it’s not all rainbows and butterflies. Your credit score will take a hit, showing an R7 rating that sticks around for three years post-proposal, and it’s open for anyone to peek at, potentially affecting job prospects. Also, it’s a long haul, needing you to stick to the payment plan religiously, and certain debts won’t make the cut—think secured debts or those fresh-off-the-graduation-hat student loans. Let’s not forget the costs involved, which might add to your load. So, it’s a balancing act; weigh the perks against the pitfalls to see if a consumer proposal is your best-bet solution.

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal can be a worthwhile option for managing debt, but there are pros and cons to consider.

Pros:

1. Debt Reduction: Consumers may pay back only a portion of their debts, which is often negotiated based on what you can afford (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.31).
2. Legal Protection: Once you file a proposal, creditors cannot take legal action against you for any debts included in the proposal (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 69.3).
3. Avoids Bankruptcy: It allows individuals to avoid personal bankruptcy, which can have longer-lasting impacts on credit ratings (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.33).
4. Structured Repayment: Proposals are set for a specific period, typically up to five years, allowing for a clear repayment plan (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.34).

Cons:

1. Credit Impact: A consumer proposal will affect your credit score and will remain on your credit report for up to three years after completion (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.32).
2. Payment Obligations: You must adhere strictly to the agreed payment schedule, and missing payments can result in the proposal being annulled (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.35).
3. Fees: There may be fees associated with setting up and managing the proposal, which can reduce the amount of debt relief you achieve (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.24).
4. Potential that Creditors Will Reject: Creditors may vote against a proposal, leading to bankruptcy or requiring a revised proposal (Bankruptcy and Insolvency Act, RSC 1985, c. B-3, Section 66.26).

Consider these factors based on your individual circumstances, and consulting with a licensed insolvency trustee is advisable for tailored advice.

From: OSB Helper

Related Questions

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. What is the difference between a consumer proposal and bankruptcy?

A consumer proposal allows you to settle debts for less than owed while keeping more assets and having a lesser impact on your credit score, whereas bankruptcy involves surrendering assets to eliminate debt[2][3][5].

2. How does a consumer proposal affect my credit score?

A consumer proposal will negatively affect your credit score, but less severely than bankruptcy, and it will stay on your record for 3 years[2][4][5].

3. What are the eligibility criteria for a consumer proposal?

You must owe less than $250,000 in unsecured debt, be a resident, have a reliable income, and not have an open consumer proposal or be under 18 years old[4][5].

4. What are the costs associated with a consumer proposal?

The costs include a filing fee, administration fee, a levy on monthly payments, and counseling session fees, all of which are added to the proposal amount and paid through monthly payments[4].

5. How long does a consumer proposal last?

A consumer proposal typically lasts up to 5 years, during which you make consolidated monthly payments to settle your debts[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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