Category: Consumer Proposal

Consumer Proposal Vs. Second Mortgage – Which Makes More Sense
Clients often come to us seeking viable debt solutions, but are unsure what those debt solutions are. Most people are aware of some of the options available, but not all, and are sometimes surprised to learnthat accessing the equity in their homes through a second mortgage is a great way to get out of debt. Once they’ve learned this, their next question is which option makes the most sense – a consumer proposal or second mortgage financing?

Let’s compare the two.

Consumer proposal
- Pros: Consolidates debt into one monthly payment
- Sometimes reduces debt
- Stops interest
- Stops collection action
- Cons: Credit is bruised for a short period
Second Mortgage
- Pros: Consolidates debt into one monthly payment
- Stops collection action
- Preserves credit
- Cons: Interest bearing, debt will not be reduced unless settlements are made
If there is significant equity in your home, an experienced financial professional will tell you that a consumer proposal is probably not the best way to go. In theory, if you have enough equity to obtain a second mortgage, that should be explored before filing a consumer proposal.

Consumer proposals are negotiated and accepted based on your income, assets and ability to pay. If you have equity in assets that will be considered in your proposal.

Wait, there is a third option which combines the two. If you have some home equity, you can leverage it to make an cash consumer proposal – this is where a proposal is negotiated for the amount to be paid in one lump sum. Here is an example: Sally owes $45,000 in debt and has the ability to get a $30,000 second mortgage. Sally could make cash proposal for $30,000 to settle the debt once and for all if all of her financial information makes sense within consumer proposal guidelines. This would clear the debt and allow her to rebuild her credit faster.

Why? A mortgage preserves credit because the creditors are paid in full, whereas a consumer proposal reports to the credit report for 3 years from the date that it is paid in full. In the case of a cash consumer proposal, it would be paid in full when filed and so the proposal would cease to exist on the credit report 3 years from when filed – whereas bad credit can linger for 7 years or longer.

If we’ve managed to make things a bit more complex than you’d originally envisioned, that is ok – it just means that you are now more aware of the options that exist and better prepared to make the best decision for your own situation.

Our only advice is this: never go directly to a trustee, whatever your end decision. A trustee represents the creditor, not you and they actually earn more when you file a larger proposal. An independent financial consultant hired by you can structure your CP, save you big and protect you from the trustee and your creditors.

DebtCare is an experienced financial consultant – one with your best interests in mind.

Call us today to learn more about your options: 1 (888) 890-0888.
June 21, 2016
Spotlight: Does a Consumer Proposal Ruin Your Credit?
Last week we went over some of the basics of a consumer proposal, and thought we’d follow up this week by clearing up a few other questions people have regarding consumer proposals. The spotlight this week: does a consumer proposal ruin your credit?

Does a consumer proposal ruin your credit? This is one area where people get confused about consumer proposals. One common myth is that, if you file a consumer proposal, your credit will be ruined for 7 years. This is a loaded assumption and one we mean to break down and dispel right now.

Let’s start with a few facts about your credit:
- Any late payments to credit and R9s (defaulted debts) report to your credit for 6 years following the date it is paid (back up to date).
- A bankruptcy stays on your credit report for 6 years from the date that you are discharged.
- A consumer proposal stays on your credit for 3 years from the date that it is paid in full.
So, right away you will likely notice that of the 3, the consumer proposal is the one that actually remains on your credit for the shortest period of time.

The great thing about a consumer proposal is that, once filed, it can be paid off at any time. This means that you can make more than your monthly payments whenever you wish to ensure that it is paid off quickly. This is one of the most important aspects of rebuilding after a consumer proposal. For example, if your proposal is paid off in 2 years, it would be completely off your credit report in 5 years, less time than if you had just left a defaulted item there.

Additionally, even while the consumer proposal is on your credit report you can rebuild. Many lenders will extend mortgage financing to people who have a paid off consumer proposal with 1-2 years of strong, re-established credit. Using products such as a secured credit card to rebuild while in your CP are a good idea, because once the CP is paid, you won’t have any credit on your report (and lenders will want to see some credit history).

So, does a consumer proposal ruin your credit? Chances are, if you are loaded in debt, have maxed out credit cards, made late payments to credit, or had accounts go to collections, your credit is already bruised. If this is the case, a consumer proposal leaves you in no worse a position, but will get you out of debt.

Want to find out more about finally getting out of the vicious debt cycle that keeps you up at night?

Call DebtCare today at 1 (888) 890-0888.
June 14, 2016
Can I File a Consumer Proposal and Keep My House?

You’ve likely heard the radio ads or seen the commercials on television citing the benefits of consumer proposals. If you’re an individual and your total debts do not exceed $250,000 (not including debts such as a mortgage secured by your principal residence), a consumer proposal might just be the best solution.

Consumer proposals have been around for a long time, but it has been over the last decade or so that they’ve become popular as a viable solution for dealing with debt. Filing a consumer proposal is a legally binding process which involves a financial settlement to your creditors based on an accepted amount, your income and ability to repay. This often involves reducing your debt.

Some assume, incorrectly, that a consumer proposal and bankruptcy are one and the same. While both are ultimately administered by a trustee, and both are valuable tools when you’re in over your head financially, they are actually quite different. In bankruptcy, you make monthly payments to a trustee. While undischarged, you must participate in credit counselling, report income, etc., to the trustee. You are insolvent and all of your relevant assets and income are vested in the trustee until you are discharged. The trustee in bankruptcy remains in your life until you are discharged.

In a consumer proposal, an amount of money is proposed to your creditors with a 4-5 year repayment schedule. Once your creditors accept your proposal it is binding and can be paid in full at any time thereafter. Unlike bankruptcy, you are not “undischarged” and you do not have any obligations to the trustee other than making your monthly payments.

One of the most common questions we receive when individuals come to us looking for debt help is if they can keep their house if they file a consumer proposal. The answer is yes. As long as you are able to continue making your monthly mortgage payments, your mortgage lender cannot foreclose or change the terms of your mortgage just because you’ve filed a consumer proposal.

As mentioned, a consumer proposal is a legally binding agreement administered by a trustee. However, in order to reach the best settlement possible – one that benefits your creditors and one which you can realistically meet – you are best served by going to a debt specialist rather than going directly to a trustee. A trustee is required to find the best deal for both parties – which means they represent both you and your creditors. The trustee is the one with the power to determine what you can afford to pay, so entering the ring with a debt specialist who can represent your interests before any others will ensure you are protected.

If you are considering a consumer proposal to help get rid of your debt, call DebtCare first. We represent you and only you. 1 (888) 890-0888.

June 8, 2016
When Your Trustee in Bankruptcy is Pushing a Consumer Proposal…

So you’ve finally decided to get a handle on your debt. You’ve done some research, spoken to friends and family, and have decided to get in touch with a trustee. On the first consultation, that trustee in bankruptcy suggests a consumer proposal. Then continues to suggest it, making it seem as though it is your only option.

If your trustee in bankruptcy is pushing a consumer proposal, beware!

Don’t get us wrong. A consumer proposal is a great way to get out of debt, and thousands of

When Your Trustee in Bankruptcy is Pushing a Consumer Proposal…

Canadians are taking this appealing option for the number of benefits it presents. However, it is not the only way to get out of debt – and if your trustee is presenting it as such, they might have ulterior motives.

Why should you proceed with caution? It is simple: a trustee administers proposals and bankruptcies – that being said, these individuals are not there to represent and act for you alone. Their role is to administer your estate for the benefit of you AND your creditors. Ok, that seems fair…

The problem here is that in consumer proposals the trustee is compensated based on the amount of the proposal. That alone presents a conflict. Add to this the fact that they don’t represent you, and it, essentially, is the same as going to court with a lawyer who says that they also act for the prosecutor – not sounding like such a smart idea anymore, is it?

If you are in debt and looking for a way out, the first thing you need to do is get an impartial opinion on the state of your credit and finances. This includes looking at ALL the ways that the debt could be addressed, including exploring consolidation options, not just a consumer proposal.

If a proposal is the best answer, that is great – it could save you money on interest, bring down your total debt balance, and consolidate all of those debts into one tidy monthly payment. Just be sure to have your representative negotiate the proposal with the trustee – don’t go to the trustee on your own – then you get the best deal and the representation of a professional who is representing only your interests and goals!

At DebtCare, we deal with debt every day, and we represent you and only you. If you are considering a consumer proposal or any other debt relief option, call us first. We will make sure that you are protected! 1-888-890-0888.

March 15, 2016
In the News: Woman Decides to File a Consumer Proposal to Conquer High Interest CitiFinancial Loan
When stuck in a financial rut, with credit that may be less than stellar, many Canadians choose to turn, often out of necessity, to the alternative lending market, or payday loan companies, to meet financial obligations. Donna Border is just one example of this – and her story has made it to the Huffington Post.

According to a recent article, Borden’s story was brought to light thanks to a lender’s predatory behaviours which seemingly took advantage of the single mom. According to the article, thanks to her credit history, “Borden couldn’t qualify for a line of credit from a bank, which typically charges less than 10 per cent interest. She was forced to turn to the alternative lending market, where lenders operate outside of regulated financial institutions. She settled for a 28.99 per cent interest rate.”

This eventually resulted in Borden paying $25,000 on a subprime, $10,000 loan, at which point she said enough was enough and decided to fight back. Read all about her story here: http://www.huffingtonpost.ca/2015/07/31/predatory-lending-canada_n_7898598.html.

Unfortunately, Borden’s situation is not uncommon. Lenders price to risk, and this means that once there is more risk, rates go through the roof. So what happens when your financial obligations become too tough to handle and you think a loan is the only way to regain control?

As Borden and the thousands of others like her have learned, borrowing your way into more debt and higher interest credit products until you pop is not the best way to deal with debt.

Strong initial signs that you are running into credit problems:
- You are making only the minimum monthly payments to your credit cards
- You are getting payday loans to avoid having your credit pulled and to make ends meet
- You owe more debt than you could reasonable afford to pay in full within 4 years
Filing a consumer proposal is a viable option for dealing with debt now – you don’t have to wait until everything is in default and collectors are harassing and humiliating you. It also has the added benefit of halting any enforcement action that has already been levied against you, and puts a stop to sky high interest.

As the article notes, predatory lending will not go away. The government has regulations in place, but they don’t make interest illegal until it reaches 60% and payday loans can charge up to a 21% fee to borrow for only 2 weeks. As long as there are people who are vulnerable because they have had financial problems and have fewer options, these lenders will continue to gouge consumers who believe they have no other options.

Filing a consumer proposal is an important debt relief option to consider when it comes to getting a fresh financial start. If your credit is making it hard to find relief, and you find even paycheque to paycheque living has become difficult, a consumer proposal may just prove to be your best bet.

To find out more about how filing a consumer proposal can help you rebuild, call DebtCare Canada today at 1-888-890-0888.
November 18, 2015
Need to Know: What is a Consumer Proposal?
It is no secret that many Canadians struggle with debt. The ease with which credit is granted, followed by the difficulty in trying to resist the temptation to buy what we perhaps can’t necessarily afford, means that Canadian consumer debt seems to continually grow, even when we are continually cautioned.

With this consumer debt comes the need for debt relief. Debt relief can take many forms, some more well-known than others. This week we are looking at one of the most popular forms, the consumer proposal, and answering a common inquiry: what is a consumer proposal.

Similar to a bankruptcy, a consumer proposal is a legal solution for dealing with debt. That being said, it is not a bankruptcy, and in many cases individuals find consumer proposals to be better when it comes to assets. For example, many people who opt for consumer proposals are able to keep their homes or cars.

So, what is a consumer proposal? When you are in debt, and can’t seem to get any traction as far as paying it off, you may choose to make a proposal to your creditors, based upon an income and asset calculation. This is a consumer proposal. In this proposal, you offer to pay creditors either all or a certain percentage of the debt owed, monthly, over a term of typically 4-5 years. The amount of your proposal is based upon your income/assets and your ability to pay.

Once this proposal is presented to your creditors, they have a finite period of time to vote to accept or reject it. Once accepted, this becomes a legally binding contract between you and your creditors, and you begin making the monthly payments.

Benefits of a consumer proposal:
- Debt is usually reduced in a proposal but even if it is not the proposal will stop interest from accumulating.
- A consumer proposal stops collection action being taken by unsecured creditors, such as wage garnishments, frozen bank accounts, etc…
- A consumer proposal can be paid in full at any time, and will be removed from your credit report 3 years following the date in which it is paid in full.
A consumer proposal is a legal solution, one covered under the Bankruptcy and Insolvency Act, and while it is not a bankruptcy, it is administered by a trustee.

Something to keep in mind: a bankruptcy trustee is an administrator who earns money based on the size of the proposal negotiated. They do not represent you – they are a court appointed officer with a job to ensure that you make a proposal that is a win for your creditors. This can be confusing because many trustees advertise solutions as though they represent you, when in fact they are more subjective than that, and often working for their own best interests.

A proposal is a good solution, but you should not make one through a trustee unrepresented. A representative represents you so you can speak openly without consequence. A representative can negotiate the deal on your behalf with the trustee, and can often negotiate a more competitive deal than had you gone directly to the trustee.

So, what is a consumer proposal? A very viable debt relief option – but one that you should know all about before contacting a trustee. Call DebtCare today – we represent you, not your creditors. 1-888-890-0888.
October 8, 2015

Does a Consumer Proposal in Canada Stay on Your Credit for 7 Years?

Many people choose a consumer proposal in Canada to get finances back on track. These represent a great debt relief option because you can settle your debt, often reduce the total balance to be repaid, freeze interest and consolidate the various monthly bills into one single, monthly payment.

Of course, as with any debt relief solution, there are implications for your credit, and we are often asked what those implications are. Many individuals come to us with a fear that a consumer proposal will ruin their credit for the long term, and leave happy knowing that this isn’t actually the case. Often the pros far outweigh the cons, especially when you consider the fact that your credit is likely already not so stellar – coupled with the fact that a CP can save you thousands of dollars and stop self-serving creditors from continually harassing you.

When it comes to consumer proposals, by far the question asked most often is “how long does it stay on my credit report?” The answer is fairly simple, but the length of time really depends of you. Many think that a CP is just like a bankruptcy – on your credit report for 6 years following the date of discharge – but this is not the case.

In a nutshell, a proposal is on your credit for 3 years from the date it is paid off in full. The faster you pay off the proposal, the faster it is off your credit report.

Here is a handy chart to help show you how to calculate how long a CP will be on your credit:

Paid of immediately	On your credit report for 3 years overall
Paid off one year after filing	On your credit report for 4 years overall
Paid off two years after filing	On your credit report for 5 years overall
Paid off three years after filing	On your credit report for 6 years overall
Paid off four years after filing	On your credit report for 7 years overall
Paid off five years after filing	On your credit report for 8 years overall

A consumer proposal in Canada is not like bankruptcy where you have an ongoing obligation to your trustee pending a discharge. Once creditors agree to a proposal, it is binding and can be paid off at any time. Or, you can choose larger monthly payments to get it paid off faster – the choice is up to you and your own personal situation.

Once you have negotiated a proposal and it has been accepted, start rebuilding your credit quickly with a secured credit card. This will help you establish good credit behaviour and show future lenders that you are committed to getting back on track.

Also, make sure that you stay on top of your credit report. Ensure that the credit reporting agencies are aware that you have filed, and also that it has later been paid off – don’t just assume that they have been made aware. Consider sending letters of discharge through registered mail.

Rather than being a credit rating killer, a consumer proposal is actually a great way to begin the process of getting your credit rating back on track. By consolidating all payments and reducing principal, you can get back on your feet, and don’t have to worry about long term impacts.

For more about filing a consumer proposal in Canada, or to discuss other options for debt relief, call DebtCare Canada today at 1-888-890-0888.

August 12, 2015

Filing a Consumer Proposal in Canada – Does it Make the Most Sense for You?

The frequency with which Canadians are filing consumer proposals in order to get back on solid financial ground has increased significantly in the last few years. The reason is fairly obvious; the ability to stop collection action, halt interest, combine all payments into one, and often to negotiate for a smaller repayment amount, make filing a consumer proposals in Canada a very attractive debt relief option.

However, because a consumer proposal is a solution for dealing with financial problems, some assume that individuals on the lower end of the income scale with limited assets are the most likely candidates for a proposal. It is actually quite the opposite – often consumer proposals in Canada are filed by higher income earners.

Why? A major factor is the fact that, a few years ago, bankruptcy laws in Canada changed.

Higher income earners – Now there is an income and expense calculation (which is very low by the way) that looks at whether you earn more than a basic amount. If you do, 50% of any additional income is surplus income in a bankruptcy, so a higher income earner ends up having massive monthly payments. Also, if you have surplus income, you have to make monthly payments in bankruptcy for 20 months as opposed to 9 months (the limit if you are under the income/expense limit).

Homeowners – Believe it or not, in bankruptcy and in consumer proposals, many people are able to keep their homes! In a bankruptcy though, home equity is considered surplus income and so 50% of that equity has to be repaid. Instead, many homeowners opt for a proposal because it is a negotiated settlement so there is room to negotiate that less equity be repaid.

In a consumer proposal, you offer your creditors a sum that you will repay that covers all unsecured debt. As soon as a consumer proposal is filed, the creditors have a specified amount of time to accept or reject. Creditors who don’t answer are considered as accepting. As long as creditors representing 51% of the debt accept, the proposal goes through.

If accepted, the person has to make a minimum payment equal to the amount of the proposal divided over 48 or 60 months. That said, a consumer proposal can be paid in full at any time which also makes it more attractive to higher income earners, especially those who get large annual bonuses.

An additional reason for the attractiveness of a proposal is the impact it has on your credit rating. If paid off within 1 month to 3 years, a consumer proposal ends up being on your credit less time than a bankruptcy.

If you are struggling with debts and the threat of collection action, call DebtCare Canada today. Filing a consumer proposal may just make the most sense for you! 1-888-890-0888.

July 29, 2015
Rebuilding Credit: Bad Credit Rating Doesn’t Always Just Disappear After a Few Years
It is a very common misconception that bad credit just “disappears” once debts are paid and your credit behaviour improves. However, past credit activity doesn’t just evaporate into thin air with a few months (even a few years) of good behaviour. Rebuilding credit takes some work.

For example, if you file for bankruptcy in January of year one, pay on time, every month, and are discharged in January of year 3, that bankruptcy will remain on your report for 6 years following the date of discharge (January of year 9) – not from the time that you declared.

When it comes to consumer proposals, these stay on for 3 years following payment in full, as does any credit counselling.

Periods of inactivity can also impact your credit rating. For example, if a lender assigns debt to collections, this results in activity, and negative activity at that. However, if you don’t have any activity, this is not necessarily a good thing either.

When it comes to activity, a tip is to continually use credit and to repay that credit on time, all the time. A secured credit card is a good way to do this without being tempted to start relying on credit again or getting back in over your head.

So, if you have bad credit and want to clean it up, here are a few steps you can take to get the process started:
- Step 1 – Get your credit report and see what it says. These are available online from both Equifax and TransUnion. Some lenders use one, whereas some look at both.
- Step 2 – Deal with the bad credit debt on your credit report by paying it off. Better yet, settle it for far less than you owe with a consumer proposal to stop interest and reduce overall amounts.
- Step 3 – Document EVERYTHING. Any time you settle a debt, get a letter re: settlements and arrangements and copies of proof of your action. It can take some time for these payments to register, but keep on top of it.
- Step 4 – Make sure the credit reporting agency knows these debts have been paid – don’t count on your lender to tell them. Send the above noted documents via registered mail to ensure they reach their intended destination.
- Step 5 – Begin the process of rebuilding. Consider a secured credit card to show you are committed to maintaining positive history.
When it comes right down to it, the only way to improve a poor credit rating is to pay your debts and allow time to pass to show that your payment habits have improved.

For more information about how to rebuild your credit effectively, call DebtCare Canada today at 1-888-890-0888.
July 15, 2015
Myth vs Fact: Consumer Proposal vs Bankruptcy
Consumer proposals and bankruptcy are often confused with one another because they both involve a Trustee in Bankruptcy. In Canada, the government introduced legislation to protect people who have reached a breaking point with their debt. Over time that legislation has been amended and re-worked to simplify processes and to make the process fair for both creditors and those who owe money.

The Superintendent of Bankruptcy is an entity of Industry Canada, and is the individual who administers the Bankruptcy and Insolvency Act through appointed officers. These officers are Trustees in Bankruptcy. The Trustee in Bankruptcy’s role is to administer a consumer proposal or bankruptcy on behalf of the creditors and the people who owe money.

A bankruptcy and a consumer proposal are both powerful in that, once filed, all collection and enforcement action being made by unsecured creditors stops, interest stops, and in many cases the overall amount of debt is reduced.

That being said, a consumer proposal bears less strings than bankruptcy and should always be considered as option number 1 – bankruptcy is generally a last resort measure.

In a consumer proposal, a proposal is made to your creditors – basically you are offering them a sum of money to be repaid through the Trustee over a term of, typically, 5 years.
- Your creditors have a specified amount of time to accept or reject the proposal.
- If no one responds, the proposal is accepted.
- If the majority creditor(s) accepts, the proposal is accepted.
- If a proposal is accepted you make a single monthly payment to the Trustee for the term proposed. You can pay off the proposal at any time. You have no ongoing income reporting requirements to your Trustee.
In a bankruptcy your creditors don’t get a choice to accept or reject.
- You make a monthly payment to the Trustee in Bankruptcy over 9 or 21 months in a first time bankruptcy, depending on your income. There are maximum income thresholds set out and if your income exceeds those thresholds the term of your bankruptcy payment extends from 9 to 21 months.
- During your bankruptcy you have to report your income and any changes to your financial circumstances to the Trustee.
- If you come into any significant sums of money you may have to pay surplus income to the Trustee.
A consumer proposal is removed from your credit report 3 years from the date it is paid in full. A bankruptcy remains for 6 years from the date of discharge.

Since the Trustee doesn’t represent you, going to one directly is never recommended. Any financial information you divulge can’t be taken back. Prior to meeting a Trustee you are best served to work with a financial representative who specializes in bankruptcy and consumer proposals – one who will represent you – to review and help you structure your financial information to be presented to a Trustee. Some may even help you negotiate the terms of your proposal or bankruptcy with the Trustee.

Both of these options are viable when it comes to debt relief – just make sure that you are not putting your financial affairs at risk by attending a Trustee before seeking real help.

For more information or to protect yourself before going to a Trustee, please call DebtCare Canada today at 1-888-890-0888.
April 13, 2015