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.