First of all, if you’re looking for information on a consumer proposal because you’re in debt, know that you’re not alone. In fact, at the end of 2017, Canadian households owed over $2 trillion in debt (and mortgages made up about three-quarters of it). The average Canadian, likely just like you, owes approximately $1.70 for every dollar of income earned annually after taxes.
In Canada, people who find themselves in debt for whatever reason have a handful of debt relief options including:
1 – Debt consolidation
2 – Debt settlement
3 – Debt counselling
4 – Consumer proposal
5 – Personal bankruptcy
Today, we’ll talk about the good, the bad, and the ugly of a consumer proposal as a viable debt relief solution (and in the future, we’ll discuss some of the other options).
The good: What is a consumer proposal?
If you are a Canadian and have debt that does not exceed $250,000 (not including debts such as a mortgage secured by your principal residence), you may be eligible for a consumer proposal.
A consumer proposal is a formal, legally-binding agreement between you and your creditors to repay some or all of your debt. You work with a Licensed Insolvency Trustee (LIT) to develop a proposal or offer for payment on your terms over a certain amount of time (although, it cannot exceed five years).
If your terms are accepted by your creditors, the good news about consumer proposals is that it may:
Allow you to keep more of your assets than if you had filed for personal bankruptcy
Have a less severe long-term effect on your credit score and record
Be the safest and cheapest way to repay your debt
Allow you to rebuild your credit as soon as the debt is paid
As soon as you file for a consumer proposal:
– Your debt interest stops accumulating
– Collection agencies will stop harassing you
– Your assets are now safe and secured
The bad: What happens if your consumer proposal isn’t accepted?
There is a significant fee to create a consumer proposal — more costly than filing for bankruptcy—and your creditors may not (and do not have to) accept your proposal. Convincing your creditors and lenders that you have a good, secure job and can repay the debt in the allocated time may prove challenging and costly.
If your creditors don’t accept your proposal, you may need to increase how much debt you pay off over the five years. If you can’t afford to do that, you may, unfortunately, need to file for bankruptcy. In that case, your assets are not secure and your credit will drop to the lowest possible score (making future loans impossible, among other challenges).
The ugly: How does an accepted consumer proposal affect me?
If your consumer proposal is accepted by both your creditors and the court system, that is a relief, of course, but you’re not in the clear yet. You now have monthly debt payments for the next five years, or less, depending on your situation. If you miss more than two payments, you must file for bankruptcy.
Worst yet is two-fold.
Consumer proposals are public affairs. They go on your personal record and are searchable in a public database. That is, potential and new employers, lenders, financial institutions and landlords, business partners, among others, can see a bad mark on your ability to pay debts and manage finances.
Secondly, they significantly affect your credit score, dropping you down to an R7 credit rating which can stay on your credit report for as few as three years and up to eight years after you’ve paid off the last payment on what you owe.
Calculate your current consumer proposal repayment plan with one from Marble Financial to start building credit right away.
About MLI Marble Lending Inc.
At Marble Financial (CSE: MRBL; OTCQB: MRBLF) we are a group of forward-thinking financial technology experts that understand Canadian’s occasionally need help in achieving longer-term credit health. Through our industry-leading proprietary technology solutions Fast Track Loan, Score Up, and Credit Meds, we guide our customers back to mainstream credit 50% quicker than traditional methods. Since 2016, We are proud to have empowered thousands of Canadians to a positive financial future and continue to establish ourselves as a leader in financial wellness.