You’ve reached the point where you’re barely making ends meet. Your debt loads are rising and you’re unsure of how to repay your debts. You may be considering filing for bankruptcy. But there may be a better alternative. When paying your entire debt amount seems impossible, you may have other alternatives as options such as consumer proposals.
A consumer proposal is made to your creditors as an offer to settle your debt for less than you owe. It is beneficial to the person in debt as they only end up paying a portion of their debt and is beneficial to the creditor as they end up receiving more than if the consumer filed for bankruptcy.
A consumer proposal allows you to repay your unsecured debt such as credit card balances and lines of credit rather than any secured debt such as mortgages or vehicle loans. It is filed by a Licensed Insolvency Trustee on your behalf to negotiate with creditors the amount of debt owed and to stop interest charges. The amount agreed upon is then to be paid over an extended period, up to 5 years, through a fixed monthly amount.
Sound good? Like all things in life, debt settlement programs and consumer proposals have both pros and cons and are no magic wand:
Advantages of consumer proposals:
- You avoid further interest charges and financing costs
- You repay less than you initially owed
- You get to avoid filing for bankruptcy
- Stop calls and legal actions from creditors
- Stop wage garnishment
Disadvantages of consumer proposals:
- There’s a hefty fee of $1,500 or sometimes even more to file a proposal.
- They negatively impact your credit score and profile for 6-7 years.
- Anyone that has consent to see your credit score can see you filed a consumer proposal and settled debts for less than you initially owed.
- If you miss 3 payments, your proposal collapses, leaving you with filing bankruptcy as a likely option.
- Since only partial payments are made rather than the full amount owed, creditors report the partial payments as R7 on your credit report.
- There is a maximum debt limit of $250,000.
- If your financial condition changes, it can be difficult to keep up with payments or make any changes to the payment plan and amount.
- They’re not private and remain part of your permanent public record.
- Student loans less than 7 years old cannot be included.
- Secured debts are not included, so not all debts end up being erased.
There are advantages and disadvantages to every financial solution, so it’s critical to speak with an expert like a trained credit counsellor to make sure this is the only option you have left before you make a plan to settle. Our trained credit counsellors can help weigh your options, call 1-888-287-8506 to receive the advice you need now. You can also complete our Free Debt Analysis online to take the first step in finding the right way to eliminate debt given your own unique financial situation.