20/04/2022 0 Comments
Advantages of Filing for a Consumer Proposal to Deal with Your Debts
Consumer proposals can be an effective method to deal with debts. If you are seeking financial advisors in Belleville, call F. J. Zielski & Associates Inc now!
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Are you finding it difficult to repay your loans? In Canada, there are several different forms of debt relief you can choose, including consumer proposals, debt settlement and debt consolidation. Consumer proposals can be effective in managing such situations as they reduce the total amount owed by up to 70-85 per cent. They have a lesser effect on your credit than bankruptcy.
Most of the creditors usually agree to a consumer proposal as they will lose more if the debtor takes the next step and goes into bankruptcy. If majority of the creditors approve a consumer proposal, then the ones who voted against it are required by law to honour the terms of the proposal.
How Does a Consumer Proposal Work?
A consumer proposal is a legally binding process, administered by a Licensed Insolvency Trustee (LIT). The LIT helps initiate a deal with the lender to partially forgive and fully restructure your outstanding debt into a smaller sum. A payment plan is designed to help you get out of your debt in a reasonable way. All the interest charges are waived off and the creditors stop all collection efforts.
The debtor pays the funds to the trustee, who holds them in a legal trust and distributes them to the creditors as agreed to in the proposal. The time period in which you have to pay off debts is also extended. However, the term of a consumer proposal cannot exceed five years. At the successful completion of the process, the debtor is legally released from all debts.
F. J. Zielski & Associates Inc assists all clients in Belleville with their financial issues. Our experienced staff is friendly and approachable. We will create a proposal that is right for you and help you make a fresh financial start. We offer several services, including credit counselling and bankruptcy.
How Much Debt Should You Have to Qualify for Consumer Proposal?
To qualify for a consumer proposal, you are required to have at least $1,000 and no more than $250,000 worth of unsecured debt as a single person. If you and your spouse file income taxes together, you can have up to $500,000 worth of unsecured debt.
Advantages of Consumer Proposals
A consumer proposal is a better idea compared to other debt relief alternatives owing to the following reasons:
Your assets are protected: This is one of the biggest advantages of a consumer proposal. You get to keep all your assets, including tax refunds, investments and equity in your home.
Payments are fixed: Unlike bankruptcy, where the more you earn the more you pay, consumer proposal has a fixed payment which never increases. If you expect your income to increase in the future, this is a better option for you.
Low Monthly Payments: You negotiate to repay only a portion of your debt. As the interest stops during a consumer proposal, you can save a lot of money than you would in debt consolidation or second mortgage. However, you can pay off a proposal early if your financial situation improves.
You receive creditor protection: As consumer proposal is a legal process under the Bankruptcy & Insolvency Act, it provides creditor protection. This stops all collection calls and wage garnishments.
What Are the Disadvantages of Consumer Proposals?
Though consumer proposals have gained popularity in Canada, they are not a good option for everyone. This process usually takes longer to complete than bankruptcy as your monthly payments are usually low. We have listed some other disadvantages below:
- This process requires full disclosure of all aspects of your finance.
- The rules and regulations can make some aspects of the process inflexible.
- The protection will not apply to secured creditors who can seize your assets if you default on payment.
- Interest on secured debts and debts falling under section 178 is not waived off.
- You do not get to choose which creditors get included in the proposal.
- There is a negative impact on your credit rating.
- Creditors may reject the proposal during a vote if they find it materially insignificant.
- Loans taken during the proposal period will have high interest.
If you do not own any assets that can be seized in bankruptcy or do not have significant income, then filing for personal bankruptcy may be a better choice than filing for consumer proposal. Consider all alternatives before deciding on a debt relief method. For further queries, schedule a consultation with our financial advisors or contact us today!
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