Consumer Proposal or Bankruptcy – Are You The Right Candidate?

A number of Canadians are finding themselves under insurmountable debts. Whether it is because of some medical needs, student loans, mortgage loans, credit card loans or any other loans – when these debts get overwhelming and people start spending more than they can pay back, they are left with two options. These alternatives are consumer proposal and bankruptcy. Both of the options can help you get out of the debt; however, both have different ways to go about doing that. Below, we will discuss which option out of these two is the best for which type of candidate.

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Candidate for Consumer Proposal

Consumer proposals are best for those individuals who want to keep their assets protected, and have a stable flow of income. The reason is that the creditors in this debt management are more interested in how much the individual earns, as that is the asset for them. They do not want your liquidated assets. Being insolvent and having a stable wage makes you an ideal applicant for consumer proposal. In addition, you will also be entitled to pay all the taxes.

Once you settle for consumer proposal, you have power over your finances and assets. The decision regarding what to do with the vehicle or home is entirely yours rather than of any bank or trustee. Additionally, the reports regarding bankruptcy will be sent for only 3 years.

Moreover, there are certain limitations of consumer proposal itself that are necessary conditions to be eligible for it. Not having the debt of more than $250,000 other than mortgage, and inability to payback the entire debt are some of the conditions, and even meeting the conditions do not necessarily provide you with the creditor’s acceptance. You will receive a certificate whenever your proposal is approved.

Candidate for Bankruptcy

On the other hand, people who are right candidates to file for the bankruptcy are those who want to free their unsecured debts. To be qualified to file for personal bankruptcy in Canada, an individual has to be under the debt of more than $1,000. This will provide the individual with financial relief and guard them from their creditors.

To settle the debt, the individual needs to be aware that they have to give up few of their assets. Moreover, the bankruptcy will remain for 6 years on your credit rating if it is your first time declaring bankruptcy. Those who get automatic discharge will find bankruptcy on their credit rating for less than seven years. Lastly, you are not obligated to pay the taxes, as you cannot afford to pay.

 

You can take help of counselors who can guide and advise you on your debt problems, and ways to deal with it. A professional insight will surely be supportive to help you move forward and take responsibility of your actions, and give you a financially fresh start.

Five Objectives of Consumer Proposal

Rising CoinsConsumer Proposal is the answer to serious debt problems in Canada. It is a legal agreement between the lender and the creditor that offers the creditor a chance to payback an amount that is lesser than their debt. Insolvent individuals, who cannot pay off all their debt on time, and do not own any such assets, can qualify for consumer proposal.

There are a lot of advantages of considering consumer proposals over bankruptcy. Some of them are discussed below.

1.     Reduced Payback Debts

When an individual, who is under a huge debt, files for consumer proposal, their debt is reduced. This means that after filing for consumer proposal, they only have to pay up to 30% of their debt amount. This encompasses collection debt, credit card debt, income tax debt, overdrafts, and line of credits.

2.     Protecting the Assets

Unlike bankruptcy where your assets can be taken away from you, consumer proposal protects them once it gets accepted. These comprise of your vehicle, cottage, house, RESPs, and RRSPs. While you are managing your debt, you need to protect your assets too, because these are the only things you are left with after your retirement. Nevertheless, you just need to keep making payments till the duration that has been accepted by your creditor.

3.     Affordable

Not only is the process of filing for consumer proposal less expensive, but also the amount you are supposed to pay to the creditor is decided on the basis of your financial capability. Additionally, it takes around 60 months to pay off the proposal therefore; you can save the debt repayment amount by saving from your monthly expenses and become debt free once the period of 60 months are over. By paying at least a particular amount of your debt, you will feel an ownership and responsibility of doing something about the problem yourself. Moreover, this option is best for people who cannot pay the entire amount, but can pay back some of their debts.

4.     No Legal Actions against You

Once the application for the consumer proposal is submitted, you will be protected against any legal actions taken by the creditors, such as garnishment of the wages and harassing phone calls. You will not find these benefits in other debt reduction alternatives. Other debt managements take place through the negotiation between the lender and creditor.

5.     Simpler Process

The process to carry out consumer proposal is quite easy and uncomplicated. You can take the help of a counselor to create a proposal that the creditors will agree on, and is also in accordance with your interest and budget. Filing of the proposal is the next step, and lastly, after you have gotten a green light from the creditor, you will make payments on a monthly basis.

If bankruptcy is your least favorite option, then apply for consumer proposal. You can also take help of counselors that are experienced in the field to help you decide on which options you should settle for.

 

 

 

 

Qualifying for Mortgage after Consumer Proposal

A number of people find themselves in a position where they need to get a loan even after they have gone through the consumer proposal. The best part is that you have made it through the consumer proposal, and now you have better control over your finances. Do not feel bad that you had to go through this because these processes were made for us to financially reestablish ourselves.

Now, the question is, can you qualify for mortgage loan in Canada after you have completed your consumer proposal?

Time Duration

During the consumer proposal, the bank will not lend you any money as you are already under debt. The individual has to wait for up to two years after the discharge to be regarded as a candidate for loan. This is because the bank has to make decisions in their interest and many times, people stop paying the consumer proposal amount and declare bankruptcy in the middle of the process.

Bank Requirements

The bank will decide if you are eligible for mortgage after consumer proposal or not. This judgment is made on the following criteria.

a.      Low Debt Income Ratio

Your debt income needs to be low, if you have not developed a balance on credit cards after the proposal is complete. You will be at risk because you will be in debt of more money than you are earning.

b.      Stable Job

Second thing that the bank will take into consideration is how stable your job is. Your income and the length of your employment will also be verified. If you do not have a stable job, or a steady source of income, then you will have hard time convincing the lenders to provide you with the money.

c.       Credit Score

Lastly, your credit score will be examined, which has the power to either grant you with mortgage or not.  If you are applying for mortgage just after completing your consumer proposal, your credit score will be low. Therefore, you need to acquire strategies to boost your credit score and credit rating.

Moreover, after you have completed the consumer proposal, you can wait for some additional time and then apply for the mortgage. During that time, you can work on enhancing the credit rating because you will only get the bank’s approval if your credit score is good enough. This is the most important criteria out of the three. Individuals who are not able to meet this criterion will not get the mortgage loan even if they meet the other two conditions.

People can also carry out a credit check on themselves before they make an application on their mortgage approval. The credit bureau should include the right date of the completion of consumer proposal, and the creditor of the consumer proposal must be shown inactive. This way, you will correct the blunders before filing the mortgage application.

You can also take the help of a counselor to guide you regarding mortgage and your eligibility. Even if you do not qualify now, you will be provided with directions that will facilitate you in the future.