Dealing with debt in Canada can be stressful and scary, particularly if you are receiving collection calls and you have assets to protect, such as your home.
The good news is you can take advantage of a debt solution called a consumer proposal.
A consumer proposal lets you reduce your debt by repaying your creditors less than you owe, with the rest forgiven. How much you pay depends on your unique financial situation. It’s a great way to make a fresh start and erase your debt for good.
Let’s look at how to qualify for a consumer proposal and how the process works.
Am I eligible?
You qualify for a consumer proposal if you meet the following requirements:
· Your total debts are less than £250,000 (excluding your mortgage).
· You live in Canada as a permanent resident, under a work permit or another status (or own property in Canada).
· You cannot pay your debts as they become due and owe more than the value of your assets.
· You can afford to make a monthly repayment towards your debt after essential bills.
These rules are the same throughout Canada. So, the qualifying criteria remain the same whether you file a consumer proposal in Ontario, Alberta or elsewhere.
A proposal must be filed by a Licensed Insolvency Trustee, who deals with your creditors on your behalf.
They are licensed and regulated by the Office of the Superintendent of Bankruptcy Canada.
What are the benefits?
A consumer proposal has many advantages:
· Reduce your debt by up to 80%
· Lower your monthly payment
· Stop creditor and collection calls
· Lift wage garnishments
· Unfreeze your bank account
· Interest-free payments
· Keep all your assets, including your house and car
· Avoid bankruptcy.
Most unsecured debts, such as credit cards, loans, student loans, overdrafts, payday loans, utility bills, and tax debts, can be included in your proposal.
Difference between a consumer proposal and bankruptcy
Consumer proposals and bankruptcy are often talked about in the same breath, but there are many differences between the two.
A consumer proposal is less severe and a better option if you have assets to protect and a stable income.
But if you don’t have a steady source of income, no assets, and large debts, sometimes bankruptcy can be a better solution.
Before opting for bankruptcy, you should check whether you can enter a consumer proposal instead. Your filing will be accepted if you can offer more money than you would if you went bankrupt.
How long does a consumer proposal last?
A consumer proposal can last between one and five years. During this period, you will make a single monthly payment.
If you have the money, you can pay it off faster by making a lump sum payment.
Can I file a joint consumer proposal?
You can file a joint consumer proposal if you share your debts with someone else, such as a spouse or partner.
A joint proposal lets you include up to $500,000 of debt (excluding a mortgage).
However, if you are married and your spouse files for a consumer proposal, you do not need to be a part of it. Regardless of your circumstances, you can individually file without affecting your spouse or partner.
Do I need a consumer proposal?
Through a consumer proposal, you can reduce your debt, consolidate your debts into a lower monthly payment, stop collections, stop wage garnishments, and freeze the interest on your debts.
However, you must live in Canada, have unsecured debts of no more than £250,000, and be able to make a monthly repayment towards your debt.
All Canadian debt relief programs have pros and cons. Before deciding, you must consider your unique financial situation.