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Consumer proposals and their few challenges

by | Consumer Proposal, Uncategorized

If you’ve become insolvent, a Consumer Proposal is perhaps the most desirable option available to you to clear your debts without resorting to bankruptcy.

In a consumer proposal, a qualified administrator will sit down with you and go over your finances, and help you determine what the nature of your proposal will be. They’ll take care of preparing and filing the necessary documents, and getting in touch with your creditors on your behalf — a consumer proposal is essentially a negotiation between you and your creditors so that they see some satisfaction of repayment while you are relieved of your debts.

A consumer proposal means that, if your creditors agree, you get to repay a percentage of your debts over a fixed period of time (no longer than five years), without your creditors’ taking any further action, such as phoning you or selling your debt to a collections agency.

A successful consumer proposal allows you to pay off your debts without losing your assets or incurring further interest; it also allows you relief from some percentage of your debt, so you don’t end up having to pay it off in its entirety. Your wages won’t be garnisheed, and you’ll get help from two mandatory credit counselling sessions to help you avoid future financial problems.

It sounds like a pretty great solution, and it is, but it could still present a few challenges.

Once your consumer proposal has been approved by your creditors and is legally in place, you will be required to meet your payment commitment for five years. Sometimes, if your financial situation changes, that can be challenging. If you default on your payments, your proposal is annulled, and you could find yourself back where you started (although there is the possibility of amending the agreement, as long as you’re forthcoming with your administrator and your creditors agree to an amendment).

Your consumer proposal must be approved by creditors representing a majority of your debt; if, for example, you owe $100,000, credits representing $50,001 must approve of the proposal in order to proceed. If you don’t get majority support, you will have to examine other options.

Like a bankruptcy, a consumer proposal will have a profound effect on your credit rating. Your rating will be lowered, to either R7 (meaning that you are a consumer proposal) or R9 (meaning that you have bad debt that is uncollectible, placed for collection, or that you are bankrupt) and there it will likely stay for the duration, until you receive your certificate of full completion once all the terms of your consumer proposal have been met and the up-to-five-year repayment period has passed. After that, it will be noted on your credit report that you completed a consumer proposal, likely for a further three years. This will affect your ability to get credit, which may prevent you from making certain purchases for which we normally seek credit, such as a car or a house.

If you find yourself having trouble repaying your debts, the best thing you can do is to contact a professional credit counsellor and start the process of correcting past mistakes. Call GTA Credit Solutions today.

 

 

Bankruptcy and student loans-Ontario

by | Bankruptcy, Consumer Proposal, Uncategorized

Many graduates find themselves with tens of thousands (sometimes hundreds of thousands) of dollars of debt to go with their new educations. It can make graduation a time of anxiety instead of joy — What if I can’t find a job in my field? I won’t be able to afford a car or a home. How will I ever pay it all back?

If you’re struggling with government-secured student loan debts, the only options available to you within seven years of graduating are to contact the lender and try to negotiate a lower payment or to enlist the help of a licensed administrator to prepare a consumer proposal on your behalf, which is also a negotiation between you and your lender, but one you don’t have to undertake alone. (It has the added benefit of taking into account any other unsecured debt as well.) Any time you’re struggling with debt, it’s a good idea to meet with a credit counsellor to discuss your options.

If you’ve been out of school for more than seven years, though, bankruptcy may be an option. Any less, and your government-backed loan won’t be automatically discharged in a bankruptcy situation like your other debts.

(Remember that it’s always a possibility that any creditor may oppose your bankruptcy or your discharge, and that includes the government.)

Of course, if you have other debts increasing the pressure, reliving them through bankruptcy may still be the best option for you, as it will free up your income to pay off your student loans, but bankruptcy is a serious step that should be undertaken only after sufficient discussion with a qualified professional.

The Bankruptcy & Insolvency Act states that at any point from five years after leaving school, if you are believed to have acted in good faith and are in financial hardship (i.e. if it’s determined that continued repayment of the loan would make you experience financial difficulty), your debt may be eligible for discharge in bankruptcy, but will not necessarily be automatically discharged.

Good faith essentially means that you used the loan funds as they were intended, made reasonable efforts to repay them, and that you took reasonable steps to take advantage of lender offers of interest relief. The court may decide to let you take advantage of the five-year rule especially if you unable to work in your field after graduating (i.e. you are not deriving the economic benefit of your education), or if you left school for medical reasons without graduating.

Even if you successfully declare bankruptcy, you may still be required to make regular payments on your student loan as a condition of discharge.

These rules apply to government-backed loans. Private loans from other lenders abide by the same rules as any other unsecured lender, which means you can include them in a bankruptcy proposal at any time.

A bankruptcy that includes student loans can get complicated, especially if you’ve returned to school since graduation, so it’s always a good idea to talk to a qualified professional, like those at GTA Credit Solutions.