For many Canadians who are deep in debt and think that there’s no way out, consumer proposals in Toronto offer a much welcome relief that can alleviate a great deal of stress. Consumer proposals provide an option to consolidate debts and allow them to make repayments largely based upon only what they can afford.
A consumer proposal is a debt relief program under the Bankruptcy and Insolvency Act that is administered only by a Licensed Insolvency Trustee. It is basically a formal agreement between you and your creditors wherein they agree to reduce your debts for a certain amount with no interest charges and no additional fees and that they will not take any legal action against you, and in turn, you agree to pay off all your debts following a payment schedule within the agreed period of time.
Many people choose consumer proposals as a viable alternative to filing for personal bankruptcy for many reasons.
1. It allows you to pay what you can afford.
One of the biggest advantage that a consumer proposal offers is the ability it gives consumers to make affordable debt payments. Before filing a consumer proposal, you and your trustee will work together to come up with a monthly amount you can afford to pay and which your creditors will consider fair to ensure that they will accept your proposal. Your trustee will then negotiate with your creditors in your behalf to lower the total amount of debt that you owe them and to stop the payment of interest charges and other additional fees. Once your creditors accept the proposal, you would start making payments on the new amount in one equal payment every month for a period of three to five years. Your payments won’t increase even if your income does and you’ll never pay more than the agreed upon amount. If you do not default, all your debts are paid off after three to five years.
2. It will stop creditors from calling.
Once you fall behind on paying your debts, creditors will start calling right away, and they won’t stop harassing you until you resume making payments. In Toronto, there are only two ways to legally make your creditors stop calling you -- through a bankruptcy or a consumer proposal.
Once you decide to file for a consumer proposal, your trustee will contact your creditors as soon as possible. Once they know about your filing, they are required by law to immediately stop all collection activities against you, which can include phone calls, wage garnishment, collection letters, and more. Once collection calls stop, you will instantly feel huge relief from a great deal of stress.
3. It can help you rebuild credit faster
Consumer proposals will have a negative impact on your credit score, although the damage will not be as severe as when you have to declare bankruptcy. Generally, you will be given an R7 rating which will stay on your record for up to three years after you have satisfied all of the terms of your consumer proposal. From this point, you can start to rebuild your credit. In contrast, a personal bankruptcy will give you an R9 rating, which is the lowest rating, and it will stay on your credit report for six years after your discharge. And so, it will basically take you three times longer to start rebuilding your credit in a bankruptcy than in a consumer proposal.
4. Avoid declaring personal bankruptcy
Many people choose to file for a consumer proposal as a way to avoid bankruptcy. It offers more flexibility, no need to report your income or make surplus income payments. If your financial circumstances turn around and you can afford to pay off your proposal earlier, you can start to repair your credit faster. Most of all, it allows you to keep your assets and other possessions.
In Toronto, consumer proposals are used by thousands of people to help them get out of debt. But keep in mind, although it is one of the options you can take for debt relief when you become insolvent, it may not be the right choice for your situation. It is best to talk to a Licensed Insolvency Trustee who is legally obligated to discuss all your legal options to help you get out of debt.
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