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Category: Consumer Proposal in Canada

  • Bankruptcy and Consumer Proposal Filings Decreased in March 2020… Or Did They?

    Canadian insolvency statistics — the number of people who file for bankruptcy or for consumer proposal in a month or year — give us a good insight into the state of consumer and business debt in our country.

    The March 2020 insolvency numbers are particularly interesting as this was the first month that our national economy was significantly affected by the novel coronavirus (COVID-19) pandemic.

    In March, public health measures shut many businesses, schools, and public gatherings down. The Canadian Centre for Policy Alternatives reported on March 25 that two million Canadian workers had been laid off or were at “immediate risk” of lay off as a result of the public health measures. The Globe and Mail reported that between March 15 and March 20, Employment and Social Development Canada received about 500,000 applications for employment insurance (EI).

    But what was the impact on insolvencies?

    The Office of the Superintendent of Bankruptcy Canada released the March 2020 statistics this week. At first glance, it actually looks like Canadian insolvencies decreased from February 2020 to March 2020 — and from March 2019 to March 2020.

    • The total insolvencies filed went from 11,575 in February 2020 to 11,198 in March 2020 — a decrease of 3.3%.
    • They went from 12,325 in March 2019 to 11,198 in March 2020 — a decrease of 9.1%.

    However, as we dig into the numbers further, we can see that this decrease isn’t quite what it appears…

    A Closer Look at March 2020 Insolvencies in Canada

    When we break down the March 2020 numbers by province, things get much more interesting.

    Some provinces did see a big drop month-over-month and year-over-year. For instance, Newfoundland and Labrador went from 289 insolvencies filed in March 2019 to 228 filed in March 2020 — a decrease of 21.1%.

    But other provinces actually saw increases — some of them quite significant.

    Alberta, for instance, had 1,402 insolvencies filed in February 2020 and 1,491 filed in March 2020 — an increase of 6.3%.

    And when we look at consumer proposals year-over-year, we see another rising trend. Albertans filed 964 consumer proposals in March 2019, but 1,081 in March 2020 — an increase of 12.1%.

    We can see some similar trends happening in other provinces, such as Ontario, Manitoba, and New Brunswick:

    • In Ontario, the number of bankruptcies filed increased from February 2020 (1,066) to March 2020 (1,105) — a rise of 3.7%.
    • In Manitoba, the number of bankruptcies filed went from 69 in February 2020 to 79 in March 2020 — an increase of 14.5%.
    • In New Brunswick, bankruptcies filed went from 137 in February 2020 to 173 in March 2020 — an increase of 26.3%.
    • Not only that, but New Brunswick also saw a rise in consumer proposals filed. In February 2020 there were 2019 proposals filed and in March 2020 there were 236 — a rise of 7.8%. This also increased year-over-year, going from 193 in March 2019 to 236 in March 2020 — a rise of 22.3%.

    What Does This Mean for Debt?

    While it appears positive that insolvency filing numbers did not skyrocket during March 2020, this could be a false positive.

    The decreases in filings could also be related to several alternate factors, including:

    • Insolvency filings increased in February by 2.1% month-over-month, which could indicate that people who were already close to the brink filed earlier and did not need to in March.
    • In March, as the COVID-19 pandemic came on, we saw many economic measures come into place, such as deferring bills or payments, which could lessen the debt burden — or at least buy some time. (Find out the truth about debt deferrals or suspensions.)
    • It may also have just been too early for the true economic impacts to be known. Some of the public health measures that affected income and jobs did not come into place until the second half of March, or even closer to April.
    • People struggling may also have turned to other debt management solutions first, such as using home equity or consolidating payments.

    The increases that we did see show that there are still people struggling — and March may only be beginning. It will be interesting to see what the April 2020 statistics bring.

    What to Do If You are Struggling Financially

    If you are dealing with a high debt load, or worried about making ends meet due to COVID-19 impacts, you might be thinking about filing for bankruptcy or a consumer proposal.

    If you do, you need an advocate on your side. A debt counsellor, like the ones at DebtCare Canada, will help evaluate all of your financial options. If you decide to file, we will make sure that you are protected, and your best interests are kept in mind throughout the process. (See how a trustee in bankruptcy is different from a debt counsellor.)

    Learn more about our services and solutions today. DebtCare Canada is open 100% remotely during the COVID-19 pandemic. Reach out to us by phone or text at 1-888-890-0888 or visit www.debtcare.ca.

  • Consumer Proposal vs. Bankruptcy – We Break It Down

    Consumer proposal vs. bankruptcy – what is the difference, and which one is the best choice for you? If you want to find out the answer, read on!

    For Canadians struggling with debt, both filing for a consumer proposal and filing for bankruptcy can be a way out. But how can you tell which one is right for your situation? We’re breaking it down.

    We’ll look at:

    • What is a consumer proposal?
    • What is bankruptcy?
    • Consumer proposal vs. bankruptcy – main differences
    • Bankruptcy or consumer proposal – which one is best for you?

    Consumer Proposal

    A consumer proposal is a form of insolvency filing where you make a settlement offer to your creditors. That’s where the name comes from — it is a proposal to creditors from you, the consumer.

    In your proposal, you offer to settle your debts for less than you owe, but more than your creditors would receive if you filed for bankruptcy, instead.

    The majority of your creditors must accept your proposal for it to be approved.

    Generally in a consumer proposal, your assets are not sold off to pay your debts. A consumer proposal is only available for unsecured, non-mortgage debts between $8,000 to $250,000. If you are carrying more debt than that, you might consider another type of proposal, or filing for bankruptcy. You also must be able to demonstrate your ability to repay a portion of your debt.

    Bankruptcy

    In personal bankruptcy, you assign your assets in exchange for the elimination of your debts. Every province has certain exceptions for what you can keep but, depending on the amount of debt you owe, some assets may be sold.

    You can file for bankruptcy if you owe at least $1,000 and are not able to pay your debts. Bankruptcy only deals with secured debts, such as personal loans, credit cards, and tax debt. It doesn’t erase most secured loans, such as a car loan or mortgage, although those assets may be repossessed if you cannot meet those payments.

    To be discharged from a bankruptcy, you must meet a schedule of payments, set out by a Licensed Insolvency Trustee.

    Consumer Proposal vs. Bankruptcy – Main Differences

    Filing for a consumer proposal and for bankruptcy are two different things. The main differences are:

    • In a consumer proposal, you can only file if you owe less than $250,000 in non-mortgage debt. In a personal bankruptcy, there is no limit.
    • A consumer proposal must be accepted by the majority of your creditors. A bankruptcy does not need approval.
    • Filing for a consumer proposal leaves you with an R9 rating on your credit report while you are in the proposal; it is upgraded to an R7 once it is paid off. The R7 stays on your credit report for three years after completion.
    • Filing for bankruptcy leaves you with an R9 credit rating while in the bankruptcy and for seven years after it is discharged (it is never upgraded to a better rating throughout that time).
    • A consumer proposal generally does not affect your secured assets, like your mortgage or car – although this depends on your personal situation.
    • A consumer proposal allows you to rebuild credit faster, particularly if you pay it off quickly.

    Bankruptcy or Consumer Proposal – Which One is Best for You?

    Whether you choose to file for bankruptcy or for a consumer proposal can depend on your circumstances.

    Questions to consider include:

    • How much total debt are you carrying?
    • How much unsecured debt are you carrying?
    • How much are your secured assets worth?
    • Can you demonstrate the ability to repay a portion of your debt?

    It can difficult to answer these questions on your own. The best way to go about deciding which insolvency option is for you – or if there is an alternative debt consolidation method that may work – is by contacting a debt counsellor, such as DebtCare Canada, for a free consultation.

    Having an Advocate on Your Side

    Both a consumer proposal and bankruptcy must be filed through a Licensed Insolvency Trustee (LIT, or formerly known as a Trustee in Bankruptcy). However, if you’re filing for insolvency, it’s also important that you have an advocate on your side.

    While Licensed Insolvency Trustees administer the consumer proposal or bankruptcy, they are not equipped to be this advocate for you. A) They represent both you and the creditor, so they are not entirely on your side. And B) they earn their money based on the size of your filing.

    It’s best to have a debt counsellor – like our experts at DebtCare Canada – on your side during an insolvency filing to ensure you are represented at the table during the filing process. We can make sure you are protected and getting the best deal possible.

    At DebtCare, we will help you decide whether filing for bankruptcy or for a consumer proposal is right for you and be your advocate throughout the entire process. We perform an independent review of your financial situation and make practical recommendations that will work for you.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • Bankruptcy and Consumer Proposals Rise as Consumer Debt Reaches Record Limits

    Are you struggling with consumer debt? If so, you’re not alone.

    According to BNN Bloomberg, the average Canadian household owes $1.76 for $1 of annual disposable income. The same household devotes $0.15 of every disposable dollar to making principal and interest payments on debt, which is a record high.

    BNN Bloomberg also noted that when you add together consumer credit, mortgage, and non-mortgage debt, Canadians are carrying $2.28 trillion in credit market debt.

    What’s more, beyond just carrying debt, they’re paying the price. The number of insolvencies – bankruptcies and consumer proposals – filed by consumers in 2019 increased from the year before.

    While the numbers for the final quarter of 2019 have not been released yet, as of Q3 2019, Canadian insolvency filings were up to 34,708 — up more than 4,000 over Q3 2018. Of that, the number of bankruptcies rose slightly (from 13,549 to 13,757) and the number of consumer proposal filings rose substantially, going from 16,764 to 20,951.

    Why are more Canadians going into debt?

    According to a survey from Manulife, two in five Canadians believe they will never be debt-free.

    There are many reasons Canadians might currently be struggling with debt. Housing prices are continuing to rise, especially in larger cities like Toronto and Vancouver.

    While interest rates have stayed the same for the past year, the added spikes in 2017 and 2018 still didn’t help for those carrying debt. Some have also speculated that it’s too easy for Canadians to gain access to credit – and spend more than they can afford to pay back.

    For others, job insecurity can be part of it – not enough income to make ends meet. They might be facing job loss, working in a precarious employment situation (like the gig economy) with inconsistent income, or simply not earning enough to afford high housing prices.

    Poor credit habits can hurt your finances, too. While paying only the minimum balance on your credit cards can seem like a good idea, it can actually mean more debt in the long-term.

    Sometimes the moments leading up to major debt troubles are insidious. What can start as a seemingly harmless action can snowball into a much bigger problem.

    What exactly does struggling with debt look like? It could include:

    • Being unable to pay all your bills in full and on time each month.
    • Making only the minimum payments each month.
    • Being unable to make even the minimum payments.
    • Having more debt than income.
    • Always taking out another loan to pay off your old debts, getting into an unsustainable cycle.
    • Relying on credit to pay all your bills because you don’t have enough funds in your bank account.
    • Consistently being unable to afford the items you need to achieve a daily quality of life – pay for groceries, afford your rent, and so on.
    • Living paycheque to paycheque without knowing how you would afford an emergency.
    • And more…

    This might vary depending on your exact circumstances, but any of these could be a precursor to bigger problems down the road.

    How to deal with debt before major damage is done

    The sooner you realize you have a debt issue, the more likely you are to resolve it before major damage is done to your quality of living.

    When you file for insolvency, your credit score takes a big hit. While this is sometimes the best option, and it is possible to recover over time, if you tackle your finances early you minimize the need for this type of action.

    Some steps you can take to resolve problem debt include:

    • Creating a realistic budget and looking for ways to reduce your current expenses, then putting the savings towards paying off your debt.
    • Honestly assessing where your money is currently going and eliminating wasteful spending.
    • Practicing good financial habits, like always paying your bills on time and in full.
    • Not relying on credit. While some use of credit is good for your credit score, you don’t want to be using it because you don’t have the money elsewhere.
    • If you have an income problem, looking for ways to earn more – either through asking for a raise, finding a new job, or getting a part-time job.
    • Seeking out debt consolidation methods, such as mortgage refinancing.

    While filing for insolvency is one option, it’s not the only option – especially if you tackle the problem early.

    In 2020, make your resolution to figure out your finances for good. Debt freedom is possible with a little planning. There’s no point feeling bad about the circumstances that got you into debt. Instead, realize you’re not alone and focus on finding the way out.

    That’s where we come in. At DebtCare Canada, we will assess your situation and make recommendations to deal with debt. We’ll go over your options and create a realistic plan for success.

    Contact us today for a free consultation. Call 1-888-890-0888  or visit www.debtcare.ca.

  • Will Filing for a Consumer Proposal Ruin Your Credit?

    One of the questions we’re asked most often has to do with filing for a consumer proposal and your credit score. Many people want to know – if you file for a proposal, will your credit be ruined?

    The answer isn’t as simple as “yes” or “no.”

    To start, we need to look at what classifies as having “good” credit. If your credit score is in a high range, but you’re considering filing for a consumer proposal, we’re going to hedge a bet and say you probably don’t have “good” credit.

    Good credit is more than just your score. If you’re loaded in debt, have maxed-out credit cards, and are only making the minimum payments each month, that’s not good credit. Not to mention, it’s unsustainable for long-term financial health.

    Your credit score is based on many factors, including the amount of new credit you take out, your payment history, and the amount of debt you carry. For example, if you have a total credit limit of $5,000 and consistently carry a high balance, your credit score will be impacted. So, if you’re in debt and struggling to make ends meet, it’s very likely your credit is already being affected.

    Not only that, but then you have to consider the consequences of what would happen if you miss a debt payment completely. Defaulting on your current debts is the quickest way to get a bad credit score. Missing even one payment can be detrimental. And if you default on multiple accounts (phone bills, utilities, etc.) you might lose track of what’s been paid and what hasn’t, meaning your score will be harmed even further.

    If you’re already struggling with debt, even if you’ve been making minimum payments, there may be a month where you can’t make that payment. Or if Canadian interest rates keep increasing, it could hike your debt up to an unmanageable level. And then your credit score will be hurt anyways.

    Worse still, if you do default on a payment, that bad credit will remain for seven years after it’s resolved. This means it will stay after it’s paid in full, settled in full, or included in a consumer proposal, credit counselling, or bankruptcy.

    Now let’s look at the other side of the coin: filing for a consumer proposal.

    A consumer proposal stays on your credit for three years after it is paid in full. Typically, many people pay off a consumer proposal in four or five years, so the consumer proposal credit score could stay on your record for seven or eight years if you follow this path. But because you make a single settlement that addresses all debt, once the creditors accept it, you don’t have to take four or five years to pay if off. If you have the funds, it can be paid in full at any time.

    Plus, if you can make more than the minimum payments, you can pay off a consumer proposal sooner and start credit repair that much quicker.

    You can also start rebuilding credit right away after filing for a consumer proposal. Getting a personal loan or a secured credit card that reports to your credit report are two great ways to do it.

    Traps you want to avoid in either case, whether you file for a consumer proposal or not, are things like payday loans or creating more unsecured debt, like adding another unsecured credit card.

    In short, if you’re considering filing for a consumer proposal because you’re at the end of your rope financially and not sure how you’ll continue to manage all of your debt, your credit is probably being harmed anyways. Filing for a consumer proposal could give you the opportunity to rebuild and start fresh.

    At DebtCare, we understand how difficult it can be when you’re considering whether to file for a consumer proposal. We can help you weigh your options, deal with your debt, and, if needed, rebuild credit.

    Call us today for a free consultation: 1 (888) 890-0888.

  • Spotlight: Does a Consumer Proposal Ruin Your Credit?

    debt1Last 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.

     

  • In the News: Woman Decides to File a Consumer Proposal to Conquer High Interest CitiFinancial Loan

    debt2When 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.

     

  • Need to Know: What is a Consumer Proposal?

    debt1It 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.

     

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

    debt care1Many 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.

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

    shutterstock_53579857The 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.