The weight of credit card debt is crushing many people today. Due to high interest rates combined with your personal financial situation, you may feel as if you have no hope of getting out from under your debt. Fortunately, there are many ways to make real progress in repaying your creditors. One way to pay off credit card debt in Canada is known as the consumer proposal.
What is A Consumer Proposal?
A consumer proposal is an agreement between an individual and his or her creditors to settle unsecured debts. Individuals hire a licensed bankruptcy trustee as a mediator to help them determine whether they are good candidates for this debt repayment option. The trustee also mediates between the debtor and their creditors in order to secure the creditors’ acceptance of the debt repayment proposal. Many debt consolidators have licensed trustees that help debtors formulate consumer proposals.
Consumer Proposal Canada: Who is Eligible?
Only credit card debt and other unsecured debts can be addressed with a consumer proposal, so you cannot use this debt repayment method to solve problems with mortgage payments, car loans, and other secured debts. Having unsecured debt, however, is not enough to make you eligible under Canadian law to enter a proposal. Only individuals with a debt level over $1,000 and less than $250,000 are able to pay off their debt in this manner. Married consumers can participate jointly in the program only if their consumer debt is not more than $500,000.
Even if you meet the debt-level qualification, you may not qualify for a consumer proposal in Canada. Debtors may only have one proposal open at a time, so if you are currently bound by a previous proposal, you cannot open a new one until you have paid off whatever debt is tied to the existing agreement. Furthermore, those with a large level of indebtedness may be ineligible even if they have never opened a proposal before. If you have sufficient assets and income to pay your debt, most trustees will steer you in the direction of a low-interest debt consolidation loan. The requirements for these loans are not quite as strict as the requirements for consumer proposals.
What Are Advantages of a Consumer Proposal?
The chief advantages of going through the proposal process is that your minimum monthly debt payment will almost certainly be lowered, the interest on your debt will be frozen and assets such as your home, car, and your wages are protected. A Canadian consumer proposal can also legally stop collection agencies from making any attempts to contact you. Many creditors will also forgive part of your debt when you go through a licensed trustee or debt consolidator for the proposal. This lowers the total amount of your debt, which means that you can get out from under it more quickly than if you had to repay all that you presently owe.
What Are The Disadvantages of Consumer Proposals?
A consumer proposal is quite similar to bankruptcy. You will need to have a licensed bankruptcy trustee put together an agreement that will lower the principal owed and consolidate what is left into one loan with a lower interest payment. The bad news is consumer proposals are public record and handled through the bankruptcy courts. Additionally, trustees are required to pay your creditors as much as possible which is obviously not in your best interest. There are also situations that can force you to pay back 100% of what you owe or even force you to file a bankruptcy in which you will have to forfeit all non-exempt assets.
For many people debt settlement which is sometimes referred to as an “informal proposal” is a better option and in some cases will save you more money. To learn about your other options and find the best solution, simply fill out this online debt relief form for a free debt consultation.
get your free savings Estimate