Consumer Proposal New Brunswick

If you’re struggling with overwhelming debt in New Brunswick, a consumer proposal may be a useful solution to help you regain control of your finances. A consumer proposal is a legal process that allows you to settle your debts for less than what you owe, while avoiding the more drastic option of bankruptcy. 

By working with a Licensed Insolvency Trustee, you can negotiate reduced payments, freeze interest, and stop collection calls. In this guide, you’ll learn what a consumer proposal is, how it works, and whether it could be the right solution to help you work towards a debt-free future.

What is a consumer proposal?

A consumer proposal is a legally binding process between you and your creditors that allows you to repay a portion of your debt over a set period of time—usually up to five years. It is a formal alternative to bankruptcy and must be administered by a Licensed Insolvency Trustee (LIT). 

The LIT works with you to assess your financial situation and propose a manageable repayment plan to your creditors, often for less than the full amount owed.

Once your creditors accept the proposal, collection calls stop, wage garnishments end, and interest charges are frozen. You’ll make a one monthly payment to the trustee, who then distributes the funds to your creditors.

A big advantage of a consumer proposal is that it allows you to keep your assets, including your home and car, provided you stay current with any secured debts. 

For lots of people in Canada experiencing financial difficulties, a consumer proposal offers a way to avoid bankruptcy while still dealing with debt in a structured, legally protected manner. 

Who qualifies for a consumer proposal?

Not everyone is eligible to file a consumer proposal, but it can be a great solution for people struggling with unmanageable debt who want to avoid bankruptcy. To qualify, you must meet certain criteria established by Canada’s Bankruptcy and Insolvency Act.

To be eligible for a consumer proposal in New Brunswick, you should:

• Be an individual (not a business)
• Owe more than $1,000 in unsecured debt
• Have less than $250,000 in total unsecured debt (excluding a mortgage on your primary residence)
• Have a stable source of income to make regular proposal payments
• Be insolvent (unable to pay your debts as they become due)
• Be a resident of Canada, have property in Canada, or run a business in Canada

A Licensed Insolvency Trustee will assess your financial situation to determine if a consumer proposal is the right option.

What kinds of debts can a consumer proposal help with?

A consumer proposal is a flexible option that can help you manage a wide range of unsecured debts. If you’re feeling overwhelmed by payments or interest charges, it can provide real relief by reducing what you owe and combining it into one affordable monthly payment.

Here are some of the most common types of debts a consumer proposal can help with:

Credit card debt

High-interest credit card balances are one of the main reasons people file a consumer proposal. It allows you to settle your total debt for less than you owe, while stopping interest from growing.

Personal loans

If you’ve taken out personal loans or installment loans and can’t keep up with payments, a consumer proposal can include these debts and help you repay a portion over time.

Payday loans

These short-term, high-cost loans can quickly spiral out of control. A proposal lets you group payday loans into your total debt and pay them off without additional interest or fees.

Personal income tax debt

Owing money to the CRA can be stressful. A consumer proposal allows you to include personal income tax debt and freeze further penalties and interest.

Are secured debts covered by a consumer proposal?

No, secured debts are not included in a consumer proposal. A secured debt is a loan tied to an asset—like a mortgage or car loan. The asset serves as collateral for the lender. If you default on a secured debt, the lender has the legal right to repossess the asset to recover their money.

This means that while you can restructure or reduce your unsecured debts through a consumer proposal, you must continue making regular payments on your mortgage or car loan if you want to keep those assets. If you’re unable to maintain those payments, you may need to consider other options, such as selling the asset or speaking with your lender.

How do you set up a consumer proposal in New Brunswick?

Setting up a consumer proposal in New Brunswick is a structured process designed to help you take control of your finances. Here’s how it works, step by step:

Getting advice from a Licensed Insolvency Trustee

The first step is reaching out to a Licensed Insolvency Trustee (LIT). They’re the only professionals authorized to file a consumer proposal in Canada. Most trustees offer a free consultation, where they’ll review your financial situation and explain your options.

If a consumer proposal is the right fit, they’ll guide you through the process.

Consumer proposal filing

Once you decide to move forward, your trustee will help you file the proposal. This involves creating a formal repayment offer based on what you can afford. It’s submitted to your creditors, who have 45 days to vote on whether to accept it. If the majority (based on money owed) agree, the proposal becomes legally binding on all unsecured creditors.

Making monthly payments

Once accepted, you’ll begin making affordable monthly payments—usually over a period of up to five years. These payments are made directly to your trustee, who distributes the funds to your creditors. Interest and collection calls stop, and you’re protected from legal action while you stay on track.

Financial counselling sessions

As part of the consumer proposal process, you are required to attend two financial counselling sessions. These sessions are mandatory and are provided by your Licensed Insolvency Trustee or a qualified credit counsellor.

The goal of these sessions is to help you understand the causes of your debt, improve your money management skills, and support your journey toward long-term financial stability. Topics might include budgeting, rebuilding credit, and managing expenses.

Discharge

After completing all your payments, the trustee will issue a certificate of full performance. This means you’ve officially fulfilled the terms of your proposal and the remaining eligible debt is forgiven.

Repairing your credit and working towards a debt-free life

While a consumer proposal does impact your credit, it’s far less damaging than bankruptcy. As you make consistent payments, you’ll start rebuilding your credit. You can begin this process during the proposal, setting yourself up for a stronger financial future.

How long does a consumer proposal last?

A consumer proposal in New Brunswick can last up to five years, depending on what you and your Licensed Insolvency Trustee agree is affordable. 

Most people choose to spread out their payments to keep them manageable, but you can also pay it off faster if your financial situation improves. 

The length of your proposal is part of your custom repayment plan, designed to give you the time and flexibility you need to get back on track without the pressure of overwhelming debt.

What happens if my circumstances change during my consumer proposal?

One of the benefits of a consumer proposal is that it’s a federally regulated arrangement designed to support you through financial recovery. If your financial situation changes during the course of your proposal, there are options available.

For example, if you experience reduced income due to job loss, illness, or another life change, your payments can change based on your new financial reality. You may be able to amend the terms of your proposal to lower your monthly payments, provided your creditors agree.

If you’re unable to maintain your payments, it’s crucial to speak with your Licensed Insolvency Trustee as soon as possible. Ignoring missed payments can cause the proposal to be annulled, which means you lose all the money you’ve paid towards the debts included.

Will my credit rating be harmed if I get debt help?

Like any formal debt solution, filing a consumer proposal in New Brunswick, will affect your credit report, but the impact is temporary and often worth it.

When you file a consumer proposal, a note is added to your credit report, and your credit rating typically drops to an R7 status. This indicates that you’re making regular payments through a formal arrangement.

While this may seem like a setback, it’s often better than falling behind on payments or defaulting on multiple accounts, which can cause even more damage. The proposal remains on your credit report for either three years after completion or six years from the filing date—whichever comes first.

In the immediate aftermath of a consumer proposal, you may struggle to be accepted for a loan or face high interest rates. The good news is, once you begin making consistent payments and managing your finances better, you can start rebuilding your credit almost right away.

What are the benefits of debt solutions like consumer proposals?

A consumer proposal is one of the most effective debt solutions available in New Brunswick. It offers several advantages that can make a big difference when you’re struggling with overwhelming debt.

Freezing interest and charges on debts

One of the biggest benefits of a consumer proposal is that it stops interest from growing on your unsecured debts. Once your proposal is filed and accepted, all interest charges and late fees are frozen, giving you a clearer path toward becoming debt-free.

Lowering monthly debt repayments

Consumer proposals are designed to be affordable. Your Licensed Insolvency Trustee (LIT) will work with you to calculate a monthly payment based on what you can reasonably afford. Many people see their total payments reduced by hundreds of dollars each month, making it easier to manage everyday living costs.

Getting legal protection from unsecured creditors

Once you file a consumer proposal, you are legally protected from collection actions. This means no more collection calls, wage garnishments, or legal threats from unsecured creditors. The stress of dealing with constant pressure is replaced with peace of mind.

Reducing total unsecured debts by as much as 80%

In many cases, a consumer proposal allows you to pay back only a portion of what you owe—sometimes as little as 20%. Your LIT negotiates with your creditors, and if the majority accept the terms, all participating creditors are bound by the agreement.

Alternative debt relief solutions

If a consumer proposal doesn’t seem like the right fit for your situation, there are other debt relief solutions available in New Brunswick that can help you regain control of your finances.

Debt consolidation

Debt consolidation involves combining multiple debts into a single loan, typically at a lower interest rate. This makes it easier to manage your debt by reducing the number of monthly payments you need to make.

Debt consolidation loans are not a “one-size-fits-all” solution and may not be appropriate if your debts are too large to consolidate effectively. Be sure to evaluate your options with a financial professional before proceeding.

Credit counselling

Credit counselling is a valuable service for those who need help with budgeting and managing their finances. Certified credit counsellors work with you to develop a customized plan that helps you reduce debt and improve your financial habits.

If you feel you’re not ready for a consumer proposal, credit counselling can help you take smaller, more manageable steps to get back on track. It can also be a good first step before considering more formal debt solutions.

Personal bankruptcy

Bankruptcy is the last resort for those with overwhelming debts and no other way to repay them. It’s a legal process overseen by the federal government and administered by a bankruptcy trustee. It can help you deal with most unsecured debts, though you may have to make surplus income payments depending on what you earn.

Despite the possibility of a fresh financial start, bankruptcy has long-term consequences, like a significant impact on your credit score and potential asset loss. Before considering bankruptcy, it’s essential to explore all other options, including a consumer proposal, which might be a more constructive path towards dealing with your debts.

Is a consumer proposal right for me?

A consumer proposal could be the right choice for you if you’re struggling with debt problems but want to avoid the more severe consequences that come with bankruptcy. It’s an ideal solution if you have unsecured debts like credit cards, personal loans, or payday loans that are overwhelming but not impossible to repay.

Here are a few signs that a consumer proposal might help you on your debt-free journey:

• You owe more than $1,000 but less than $250,000 in unsecured debt (excluding your mortgage).
• You’re unable to keep up with monthly payments and feel overwhelmed by your financial situation.
• You want to protect your assets from being sold.
• You wish to avoid bankruptcy and find a way to reduce your debt burden.

Consulting with a Licensed Insolvency Trustee can help you evaluate if a consumer proposal is the best option based on your unique circumstances and financial challenges.