If you’re struggling with unmanageable debt, a consumer proposal offers a legal and structured solution that can reduce your debts and allow you to make one affordable monthly payment towards what you owe.
In this article, we will explore what a consumer proposal is, how it works, and how a consumer proposal can help individuals in Prince Edward Island manage overwhelming debt and work towards financial freedom.
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What is a consumer proposal?
If you are struggling with your financial situation and facing growing debts, a consumer proposal could be the right solution for you. A consumer proposal is a formal agreement, governed by the federal government under the Bankruptcy and Insolvency Act, that allows you to negotiate with your creditors to repay a portion of your debt.
Instead of trying to juggle multiple regular payments with high interest rates, a consumer proposal combines all your eligible debts into one single monthly payment. This amount is based on what you can reasonably afford and is often much lower than what you originally owed.
With a consumer proposal, you can stop collection calls, freeze interest, and avoid bankruptcy — all while working toward a fresh financial start with more manageable payments.
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What kinds of debts can a consumer proposal help with?
A consumer proposal is designed to help individuals manage consumer debt – like defaulted credit card payments – and other types of unsecured debts. It allows you to group your outstanding obligations into a single, affordable repayment plan.
Here are common types of debts that can be included:
- Credit card debt
- Personal loans
- Payday loans
- Lines of credit
- Income tax debt
- Medical bills
It’s important to note that secured debt, such as household debt attached to a mortgage or car loan, generally remains outside the proposal. Secured debts are backed by collateral and are not eligible to be reduced through a consumer proposal.
By addressing your unsecured obligations, a consumer proposal can give you the breathing room needed to regain financial stability.
Do I qualify for a consumer proposal?
If you are struggling with debt and want to regain financial control, a consumer proposal could be the right solution. To qualify, you must owe at least $1,000 but no more than $250,000 (excluding your mortgage on a principal residence).
A consumer proposal protects you from ongoing collection actions by unsecured creditors once it is filed. It also offers an alternative to bankruptcy by allowing you to negotiate affordable, reduced payments through a Licensed Insolvency Trustee.
Both individuals and those operating small businesses can qualify for a consumer proposal, provided the debts fall within the allowed limits. Your financial situation, income, and ability to make consistent monthly payments will be reviewed during your free consultation with a trustee to determine if a consumer proposal is the right option for you.
What does the consumer proposal process look like?
If you’re struggling with unmanageable debt, a consumer proposal can be an effective way to regain control of your financial future. Here’s a breakdown of the consumer proposal process in Prince Edward Island:
Talk to a Licensed Insolvency Trustee
The first step in the consumer proposal process is to talk to a Licensed Insolvency Trustee (LIT). An LIT is a government-authorized professional who specializes in debt relief and can help you determine the best solution for your financial situation. During the initial meeting, you’ll discuss your debts, income, expenses, and any other financial challenges you’re facing. The consultation is typically free, and the LIT will assess whether a consumer proposal is the right path forward or if other debt solutions, such as bankruptcy or debt consolidation, are more appropriate.
Get an affordable payment plan
With the help of your LIT, you will then create an affordable payment plan. The amount you agree to pay monthly is based on your financial situation—your income, debts, and essential expenses. The goal is to ensure that the payment is affordable while still reducing your debt. This payment plan is designed to provide relief and help you pay off your debts over a period of up to five years. It will also take into consideration your ability to repay.
File the consumer proposal
Once the payment plan is finalized, the next step is to officially file the consumer proposal with the Office of the Superintendent of Bankruptcy (OSB). Filing the proposal triggers immediate relief from your creditors. This includes halting collection calls, stopping wage garnishments, and preventing creditors from taking any legal actions against you. Importantly, a consumer proposal also allows you to retain assets like your home and vehicle—unlike bankruptcy, which may require you to give up certain assets.
Present proposal to creditors
After your proposal is filed, your Licensed Insolvency Trustee will present the proposal to creditors, including all your unsecured creditors such as credit card companies, payday lenders, and personal loan providers. Creditors have 45 days to approve or reject the proposal. If the proposal is accepted, the repayment process begins. This is a legally binding agreement, so creditors cannot pursue further collection actions. The collection calls will stop, and wage garnishments will be lifted, providing much-needed relief during a difficult time.
Make monthly payments
Once your proposal is approved by the creditors, you will begin making monthly payments according to the agreed-upon schedule. These payments are sent directly to the trustee, who will then distribute the funds to your creditors. The amount of each monthly payment is determined based on your budget and the total amount of debt you owe. During this time, you must comply with the terms of the creditor approval and ensure that you continue to meet your obligations. It’s important to stick to the debt payments to successfully complete the proposal and discharge your debt.
Discharge
Once you’ve completed all the required monthly payments, your trustee will discharge the remaining debt. This means that any debts covered by the consumer proposal will be forgiven, and you will be legally relieved from any further obligations to repay those debts. The discharge from the proposal signifies that you’ve successfully reduced or eliminated your unsecured debts. Now, you can work towards being debt-free and start rebuilding your financial life.
Rebuild credit score
Although a consumer proposal will impact your credit score, it provides an opportunity to start fresh. Unlike bankruptcy, a consumer proposal allows you to keep most of your assets and begin rebuilding your credit while paying off your debts. After completing the proposal, you can work on credit rebuilding by making minimum payments on any remaining debts or new credit lines you open. Over time, you can improve your poor credit and regain access to financial tools like loans and credit cards.
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How long does a consumer proposal last?
A consumer proposal typically lasts up to five years, depending on your financial situation. Unlike bankruptcy, which can last up to seven years, a consumer proposal allows you to repay only a portion of your unsecured debts over a more manageable time frame. The length of the proposal is determined by the amount you owe, your income, and the terms agreed upon with your creditors. The goal is to provide affordable monthly payments, while allowing you to eliminate significant portions of your debt without the long-term impact of bankruptcy. Once the terms of the proposal are met, any remaining debt will be forgiven.
How does a consumer proposal impact my credit?
Filing a consumer proposal will have an impact on your credit report, but it is generally less severe than declaring bankruptcy. Your credit score will drop initially, as the consumer proposal is reported to the credit bureaus. However, the debt reduction provided through the proposal allows you to eliminate a significant portion of your unsecured debts, which may positively affect your financial situation over time.
While the proposal is in place, the credit report will show “proposal filed” for up to three years after you’ve completed the terms, or six years from the date of filing, whichever comes first.
You may struggle to access credit products or open a bank account, and may face higher interest rates or be forced to meet more stringent conditions due to your previous debt issues. Over time, as you work to rebuild your credit, your financial standing will improve.
Are there other debt relief solutions that help me avoid bankruptcy?
If you’re facing financial challenges and want to avoid declaring bankruptcy, there are several debt relief options that can help you regain control of your financial situation. These alternatives allow you to manage your debt without the severe consequences of personal bankruptcy.
Debt consolidation
Debt consolidation involves combining multiple credit card balances or unsecured debts into one loan or payment plan. This solution often comes with a lower interest rate, helping you save money on interest charges and simplifying your monthly payments into a single, more manageable amount.
Debt management plan
A Debt Management Plan is a repayment program arranged through a certified credit counsellor. Under this plan, you’ll make a single monthly payment, which is then distributed among your creditors. It’s an effective way to regain control over your finances, as it may involve negotiating for lower interest rates or waived fees, while also helping to consolidate your payments into one.
Credit counselling
Credit counselling services can help you assess your situation and offer guidance on managing your debt and improving your overall financial health.
These services help you understand your finances better and may assist in creating a budget or financial plan. In addition, some agencies may recommend debt settlement, which involves negotiating with creditors to reduce the overall amount of debt you owe.
Is a consumer proposal my best route to debt freedom?
If you’re struggling with unmanageable debt, a consumer proposal could be a smart alternative to the bankruptcy process. It allows you to regain control of your financial situation by offering debt relief while avoiding the severe consequences of bankruptcy. By working with a local Licensed Insolvency Trustee at Farber, you can assess whether a consumer proposal is the right solution for your unique financial situation.
If you’re seeking a fresh financial start, it starts with debt help you can trust. Contact Farber for practical advice and debt control solutions today.
