5 Reasons to File a Consumer Proposal

What is a Consumer Proposal? A Consumer Proposal is an alternative to declaring personal bankruptcy. It’s an arrangement that is negotiated with your creditors through a Licensed Insolvency Trustee. A legally binding agreement is put in place to provide you with immediate protection from debt collectors and arrange for a partial repayment of your total unsecured debt owing. When filing a Consumer Proposal, you agree to pay a portion of what you owe, and your creditors agree to forgive the balance.

Consumer Proposals have been gaining popularity as an alternative to bankruptcy among Canadian consumers since insolvency legislation changes in 2009 made them more accessible to Canadian consumers.  In 2009, Consumer Proposals accounted for just 24% of all consumer insolvencies filed in Canada, while in 2015 they accounted for almost 50% of all consumer insolvencies.  Why are they so popular? 

Filing a Consumer Proposal allows individuals to keep assets they would otherwise lose in bankruptcy.  Moreover, monthly payments are structured to fit within the individual's cash flow or budget, unlike bankruptcy where monthly payments are set based on an established guideline.

Here are 5 specific reasons to file a Consumer Proposal:

1. Creditors are dealt with at the same time on the same terms:
When a consumer proposal is filed, all debts are pooled.  The consumer makes one monthly payment to the proposal administrator, who pays the creditors their proportionate share of the monies paid.

2. The interest clock stops:
When a Consumer Proposal is filed, interest is frozen so the debt cannot get any bigger.

3. You can reduce your total indebtedness:
The vast majority of Consumer Proposals filed represent a reduction of debt, often up to 70-80%.

4. Administration costs are included:
A consumer is not charged fees to file Consumer Proposal.  The proposal administrator retains a portion of the Consumer Proposal payments to cover administration costs, and the amount retained by the proposal administrator is set by federal law.

5. If you can afford to file a Consumer Proposal, the law says you should:
Some consumers are under the impression that bankruptcy is a quicker and cheaper way to get out of debt.  However, if a Consumer Proposal is a viable option but the consumer chooses to file bankruptcy instead, the bankruptcy trustee has an obligation to report this fact to the creditors and may take steps to extend the bankruptcy period to collect an additional portion of the bankrupt’s income for the benefit of the creditors.

I have also covered this topic in my video, "Why Should I File a Consumer Proposal Over Bankruptcy", which you can access here.

This article was written for www.MNPDebt.ca.  You can view the original aricle here.

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