What is a Consumer Proposal?

In today’s troubled economic times we are bombarded with ads for debt management and debt settlement plans, but consumer proposals remain relatively unknown to the general public. Why?

Not everyone is eligible for a consumer proposal and they must be handled by a licensed bankruptcy trustee. Many of us are terrified at the thought of bankruptcy and consequently fail to get any information about the services offered by bankruptcy trustees. So here’s a brief overview of what consumer proposals are all about.

First, you have to be “insolvent” to qualify for one. Simply put, that means you owe more than you own and you can’t keep up with your monthly payments. The bankruptcy trustee you hire makes a proposal to your creditors on your behalf, offering to pay back a portion of what you owe over a period of time, no more than five years. Once the proposal is accepted by your creditors, it becomes legally binding and collection activity against you will cease.

While this might sound too good to be true, there is a high price to pay for consumer proposals – your credit rating will suffer. The negative impact will not last as long as it would if you were to file for personal bankruptcy, but it is something you need to be aware of.

While most consumer proposals involve monthly payments over time, you can make a lump sum payment or a combination of a lump sum with monthly payments, if your financial situation makes it possible. To find out what’s best for your, you need to consult a licensed bankruptcy trustee as soon as possible.

If you’ve already been searching for solutions you might be wondering about the differences between the debt settlement plans you’ve seen advertised and consumer proposals.

There are debt settlement companies in the market offering to reduce your total debt by as much as 70% with a debt settlement plan. You pay the company a set amount per month and once the company has a sufficient amount they hold for you they offer settlements to your creditors. The key difference between debt settlement and consumer proposals is the legal protection afforded by proposals.

Under debt settlement plans, you have no guarantee that one or more of your creditors will not be willing to wait and go ahead and sue you for repayment. So the larger your total debt, the better off you might be with a consumer proposal. It doesn’t cost anything to meet with a licensed bankruptcy trustee; and since they are aware of all the available options for solving debt problems, they are a great place to start looking for solutions.