5 benefits of a consumer proposal

A consumer proposal can be a good option if you have debts to pay and want to avoid bankruptcy. Find out the benefits of a consumer proposal and whether it could be the right next step for you.

A consumer proposal is an arrangement negotiated between yourself and your creditors. It is an alternative to bankruptcy, which is negotiated and filed by a bankruptcy trustee.

For repayment of creditors, a payment plan will be set up.

• This can extend debt repayment (you can stagger payments over a period of up to five years), stop collection agents from contacting you and make payments more manageable.

When you make a consumer proposal, you negotiate the terms of repayment, including reducing the amount owed to your creditors.

• Why would your creditors accept less?

Your creditors don’t want you to go bankrupt as it could mean never receiving any money from you.

• If you go bankrupt, your assets go toward repaying your creditors, but often those assets won’t cover the cumulative debt.
• By accepting to reduce your debt by 50 per cent in accordance with a consumer proposal, your creditor might get 50 per cent of what is owed at the end of five years, which is better than nothing.

If your consumer proposal is accepted, accumulation of interest will cease, as will wage garnishments.

• Wage garnishments are when your creditors get a court order for your employer to pay a portion of your salary directly to them rather than to you.
• It can be embarrassing for your employer to know the state of your finances and to lose control over your debt repayment in this way. A consumer proposal can be a way to avoid this.

Filing for bankruptcy means you’ll get an R9 rating for the next six years on your credit score.

• Equifax uses a scale that goes from R1 to R9, R1 being the best and R9 being the worst.
• An R9 rating will negatively affect your chances of getting loans or mortgages.

A consumer proposal will give you an R7 score, which will last three years after you finish repaying your debts.

• That means if you pay the negotiated amounts back to your creditors in two years, your credit score will keep that rating for a total of five years only.

If you set up a debt repayment plan that you can manage, you’ll protect your assets such as your home, car and RRSP.

• Plus, if you start making more money, you will continue to make payments according to your payment plan and consumer proposal, no matter how much more you make.

To ensure a consumer proposal is the right option for you, contact a bankruptcy trustee and set up a meeting.