If you’re struggling with debt you can’t afford, a consumer proposal might be the solution you need. This legally binding agreement allows you to negotiate a debt repayment plan with your unsecured creditors while avoiding the drastic step of filing bankruptcy.
Unlike bankruptcy, a consumer proposal allows you to retain assets, such as your home and vehicle, while making monthly payments tailored to your financial situation.
This guide will cover everything you need to know about consumer proposals in Saskatchewan, including the setup process, eligibility requirements, effects on your credit rating, and alternative debt relief solutions available in Canada.
Contents
What is a consumer proposal?
A consumer proposal is a legally binding agreement between you and your unsecured creditors to repay a portion of your debt owed through affordable monthly payments. It is administered by a Licensed Insolvency Trustee (LIT) and governed by the Bankruptcy and Insolvency Act.
Unlike filing bankruptcy, which may require surrendering assets, a consumer proposal allows you to keep your possessions while making a series of affordable debt payments. This option is especially appealing for people who are struggling with unsecured debt but want to avoid the more serious consequences that come with bankruptcy.
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How does a consumer proposal work?
As a legally binding agreement, setting up a consumer proposal means following a structured process. Here is an overview of the key steps:
Meet with a Licensed Insolvency Trustee (LIT)
Your first step is to consult a licensed insolvency trustee (LIT) to assess your financial situation. The LIT will:
- Evaluate your unsecured debt and overall financial situation.
- Explain different debt relief solutions.
- Determine if a consumer proposal is the right choice for you.
The LIT will work closely with you to understand your financial difficulties and determine the best way forward. They will assess your assets, income, and expenses to develop a plan that fits your needs.
Filing a consumer proposal
If you decide to move forward with a consumer proposal, the LIT will officially file it with your unsecured creditors, outlining the proposed debt repayment plan. Your creditors will have 45 days to vote on the proposal. If the majority agree, the proposal becomes legally binding.
Making monthly payments
Once the proposal is approved, you will begin making monthly payments to the LIT. These payments are typically spread over a period of up to five years.
The LIT will distribute these funds to your creditors according to the agreed-upon terms. This ensures that you stay on track with your debt repayment while protecting your assets from creditor actions.
Financial counselling sessions
As part of the arrangement, you are required to attend two financial counselling sessions. These sessions are designed to help you improve your money management skills and rebuild your credit rating.
By learning healthy financial habits, you can start the process of rebuilding your credit report and set yourself up for future financial success.
Completing the proposal
Once all debt payments are made, you will receive a Certificate of Full Performance, legally discharging your remaining debts. At this point, your consumer proposal will be marked as successfully finished, and creditors will no longer be able to collect debts from you.
Eligibility for a consumer proposal in Saskatchewan
To qualify for a consumer proposal, you must meet several key requirements:
- You must be insolvent (unable to meet debt payments).
- Your unsecured debts must fall between $1,000 and $250,000 (excluding mortgages on your principal residence).
- You must have a stable income to make monthly payments.
- You must be a resident, own a property, or run a business in Canada.
It’s important to note that secured debts – those not secured by an asset like your home – are not covered by your consumer proposal. That means you will need to continue paying your secured creditors as normal, whether that’s your mortgage payment or a vehicle loan.
A Licensed insolvency trustee will review your financial situation and help you determine if a consumer proposal is the right choice for you.
This step is critical because the LIT will be able to advise on the next course of action, whether it’s a consumer proposal, a bankruptcy, or other debt relief solutions.
Debt Solution Finder
Consumer proposal vs. Bankruptcy
People dealing with overwhelming debt often wonder whether a consumer proposal or bankruptcy is the best option for them. Here’s a comparison of the two:
Consumer proposal:
- Allows you to keep your assets, such as your home and vehicle.
- Reduces the amount of unsecured debt owed, often by 70-80%.
- Does not involve public hearings or a criminal record.
- Typically lasts 3-5 years.
- Requires working with a Licensed Insolvency Trustee.
Bankruptcy:
- Requires surrendering some assets.
- Deals with most types of unsecured debt.
- Can have a more severe impact on your credit rating.
- Typically lasts for 9-21 months.
- Requires a bankruptcy trustee to manage the process.
If you want to avoid losing your assets and reduce the amount of unsecured debt, a consumer proposal may be a better choice for you.
On the other hand, filing bankruptcy may be necessary for individuals who have no assets to protect or who cannot manage the monthly payments associated with a consumer proposal.
Does a consumer proposal make you debt-free?
No, but it can help you drastically reduce your debts. When you enter into a consumer proposal, you are negotiating with unsecured creditors to pay only a portion of what you owe. Creditors may agree to accept as little as 20% of the total debt owed.
The licensed insolvency trustee will help you determine the best terms for repayment based on your financial situation. If your income is stable and your monthly payments are manageable, your creditors may agree to a reduction in debt payments, allowing you to pay back a smaller portion of your debt over time.
Does a consumer proposal affect my credit rating?
A consumer proposal will have an impact on your credit report and credit rating, but it is not as severe as filing bankruptcy.
Once the proposal is filed, it will show up on your credit report. It will only be removed from your file either three years from the date you satisfied the proposal, or six years after the completion of the proposal, whichever date comes first.
Although your credit rating will be affected, you can begin rebuilding it by following sound financial practices, like paying bills on time and in full.
Secured credit cards
After completing a consumer proposal, many people choose to apply for a secured credit card to begin rebuilding their credit rating.
A secured credit card requires you to deposit a certain amount of money, which serves as your credit limit. By making timely payments on your secured credit card, you can demonstrate responsible financial behavior and improve your credit rating over time.
Financial counselling sessions
As part of the consumer proposal process, you are required to attend two financial counselling sessions. These sessions are designed to help you improve your financial habits and avoid falling back into debt. The sessions will cover topics such as:
- Budgeting and money management.
- Strategies for improving your credit rating.
- Understanding your financial rights and obligations.
The goal of the financial counselling is to ensure that you are better equipped to manage your finances and avoid debt in the future.
Will a consumer proposal affect my job?
A common question lots of people have when considering a consumer proposal is whether it will affect their employment. The good news is that consumer proposals are private agreements between you and your unsecured creditors, and they do not involve your employer unless your wages are being garnished (which a consumer proposal can help stop).
Unlike bankruptcy, which may require you to disclose your financial situation to your employer under certain conditions, a consumer proposal does not impact your job or career.
It’s important to note, however, that while the consumer proposal process is confidential, it’s still crucial to stay on top of monthly payments to avoid any legal consequences that could arise from failing to meet the obligations.
What happens after completing a consumer proposal?
Once you’ve successfully completed your consumer proposal, you will be legally discharged from the remaining debt included under the terms of the agreement. Unsecured creditors will no longer be able to pursue you for the remaining balance, and you will receive a Certificate of Full Performance from your licensed insolvency trustee.
It’s important to maintain responsible financial management moving forward. While a consumer proposal can provide a fresh start, ongoing financial responsibility is essential to avoid falling back into debt.
Alternative debt relief options to a consumer proposal
While consumer proposals are a great option for many people struggling with unsecured debt, they are not the only solution available in Canada.
Bankruptcy
Bankruptcy is often considered a last resort for people who have no way of paying off their unsecured debt and are looking for a fresh financial start.
Filing bankruptcy involves liquidating some of your assets to repay creditors and can lead to significant consequences for your credit rating.
If you don’t have assets that you need to protect or if you’re unable to make monthly payments on a consumer proposal, bankruptcy might be your best option, but should always seek professional advice first.
Debt Consolidation
Another alternative to consumer proposals is debt consolidation. This involves taking out a single loan to pay off multiple debts, consolidating your unsecured debt into one payment.
If you qualify for a debt consolidation loan, this option can simplify your payments and reduce the amount of interest you are paying on your debts.
Is a consumer proposal right for me?
A consumer proposal is a useful option for people facing financial difficulties due to unsecured debt.
Whether you’re dealing with credit card debt, medical bills, or payday loans, a consumer proposal offers a way to reduce your monthly payments and work towards a debt-free future. However, it’s important to understand that debt solutions like consumer proposals are not a one-size-fits-all solution.
If you’re ready to take control of your financial situation, but you’re not sure which options are available, reaching out to a licensed insolvency trustee is the first step towards finding the right solution for you.
