How To Avoid Bankruptcy With A Consumer Proposal

If you have a job but are unable to make all your minimum payments, let alone actually pay down your debts on things like , you may have wondered if bankruptcy is the only way to get out from under all your debt. There is another option you should consider before bankruptcy, filing a consumer proposal.

A consumer proposal is an option for anyone with over $5,000 but less than $250,000 in unsecured debt, or $500,000 per couple. Unsecured debt might include credit cards, lines of credit, loans and even unpaid income tax. With a consumer proposal, you are asking them to accept a lower monthly payment over a set amount of time. Your proposal is voted on by all the creditors involved, if the majority accepts, it is binding for all creditors. Under the Bankruptcy and Insolvency Act, once your proposal is accepted your interest is frozen and you are protected from any legal action.

For example, say you have $50,000 in consumer credit. Since they may get less under bankruptcy, many creditors would accept an arrangement that returns half of that amount back to them. After looking at your net income, minus all the living expenses such as rent, utilities and food, maybe it’s determined that you could comfortably afford $500 a month to your creditors. The proposal would then be to pay back $25,000 by paying $500 over 50 months. You can miss two payments, the payments would then be added on to the end. If you were to miss a third payment during this process, the proposal is annulled and the creditors will be back on you for their money, including the interest since the time you filed the proposal.

Like bankruptcy, a consumer proposal needs to be arranged by a licensed bankruptcy trustee. They will assess your financial situation to see if there are any other options, such as improving your spending habits or looking into a debt consolidation loan. If it’s determined that a consumer proposal is the best choice for your situation, the trustee will prepare all the paper work detailing income and expenses, payment terms, as well as your assessment certificate and the actual consumer proposal.

All of the creditors on your credit report will report an R7 until the payments are completed, then the note of having completed a consumer proposal will remain for another three years. Since this is only for unsecured debts, this will not cover your mortgage or car loan. You also can’t get out of your obligations for support, alimony or student loans. While this arrangement may not work for everyone’s financial situation, a consumer proposal may be the best way for many to recover from their debts without losing their assets to bankruptcy.

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you! You can also follow me on Twitter for all the latest posts or to send me any comments or questions!

10 Responses to How To Avoid Bankruptcy With A Consumer Proposal

  1. Consumer proposal could be a great help for everybody. But, can’t we really tighten up our belt by just living based on what we can? I know it wouldn’t be that simply, yet for sure we could live in a debt free life.

  2. I don’t believe on bankruptcy proposals. It’s just a matter of discipline on your spending habits. Any proposal is useless unless you’re willing to change your habit.

  3. Been hearing of this for a while but never actually stopped to learn more about it. I guess bancruptcy is akin to death in that way for me, never really want to think about it until I have to. I actually learned a bit from your article without becoming depressed. Good show.

  4. I couldn`t sleep at night because of my debts, and that`s why I found out about consumer proposal on the internet. It cost me a bit more than bankruptcy, but it made the process much easier. My advice is don`t let those banks ruin your life with their loans, if you can`t comfortably pay them back, book an appointment with a trustee as soon as possible, you don`t have to put up with them.

  5. Thanks for the info. Honestly, I didn’t know what a consumer proposal was until I read this. It sounds like a much better option than the creditors. I think from now on I’ll find out about potential consumer proposals that are available if I have to get in debt for something.

  6. You don’t want to go bankrupt your business as well as your finances if you’ll just learn from mistakes and demands and all that includes the economy. Take some advices and read. It might help.

  7. Tom, this is such a well written, concise and helpful blog and explanation of Consumer Proposals. Parliament was looking for a way to help insolvent debtors avoid bankruptcy and it looks like they got it right with Consumer Proposals. For years now personal bankruptcies have been declining, and Consumer Proposals have been increasing. Hopefully those debtors going through the process rehabilitate themselves by adopting proper budgeting techniques to take with them and apply into the future.

    Continued success.

  8. Listening to your clients or the customers can be useful to remove bankruptcy. That can be overcome by pertaining a good behavior with the clients and the customers which might be attained through a nlp course.

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