Thanks to a legally enforceable agreement called a consumer proposal, you can settle your debts for less than you owe. A lot of people in Canada who are struggling with substantial debt are turning to consumer proposals. It’s a bankruptcy alternative you might want to consider if you’re having financial difficulties. Similar to bankruptcy, only a Licensed Insolvency Trustee may file a Consumer Proposal.

Here are five reasons to consider a Consumer Proposal:

Avoid declaring bankruptcy

Although bankruptcy gives you a new financial start by wiping off unsecured debt, it has distinct requirements from a consumer proposal. You must maintain thorough financial records throughout a bankruptcy and inform the trustee of your monthly income. It might be necessary to sell any valuable possessions you have that are unnecessary, like a boat for leisure or a vacation home, and pay the proceeds to your trustee for your creditors.

But what is a consumer proposal? With a consumer proposal, you only need to make monthly payments after the creditors approve the plan. There is no obligation to record and submit comprehensive income and expense documents, but there is a requirement to attend two financial counseling sessions. You won’t lose any non-essential assets, but the value of such assets will need to be factored into the overall payment you make to your creditors during the proposal.

You need help because your debt is out of control.

If unaddressed, debt problems frequently worsen and snowball, leading to worse issues. For instance, your balance could exceed your credit limit due to this past-due fee, in which case you would be charged an extra cost.

It is incredibly challenging to restore control of your money when debt is “piled on” in this way. You might require expert assistance to get things back under control if you have trouble making your debt payments when they are due.

You lack sufficient funds to pay off all of your bills.

A consumer proposal is only available to insolvent people. This implies you owe more than your own since you can’t afford to pay off all of your debts by the due date and your assets aren’t adequate to cover them.

Your Licensed Insolvency Trustee will assist you in determining how much you can realistically afford to pay and over what time frame (5 years is the maximum permitted). Your creditors may vote in favor of or against the idea. Creditors would typically accept a Consumer Proposal because it must pay them more than they would receive in bankruptcy.

Stop garnishment and other creditor collections.

There are only two legal ways to stop creditor collection activity, and one of them is by submitting a consumer proposal. All collection activities, including phone calls and wage garnishments, must end once you submit a consumer proposal, according to the law.

Some credit counseling businesses assert that they can stop creditors’ collection efforts; however, only a bankruptcy or a consumer proposal is legally authorized to cease all collection efforts, including wage garnishments.

A key takeaway

Only a Licensed Insolvency Trustee who has obtained their license from the Canadian government can handle a consumer proposal.