The past year has been a difficult one for many families. In addition to the lockdown measures and social distancing protocols that have made everything from holding in-person meetings to getting lunch with your friends all but impossible, the economic impact on small business owners and the unemployed has pushed many to their breaking point.
Bankruptcy has long been a key legal mechanism for helping people get out from under crushing debt and have the chance at a fresh start. But filing for bankruptcy is not an easy process, and it will leave a mark on your financial record (and your credit score) for years to come.
Fortunately, there is an alternative to bankruptcy for people struggling with large amounts of unsecured debt: a consumer proposal.
What is a Consumer Proposal?
A consumer proposal is a financial agreement between debtor and lender to restructure their debt to make payment more manageable or to renegotiate the amount owed.
Consumer proposals are legally binding and are negotiated by Licensed Insolvency Trustees (LITs), who are regulated by the federal government to oversee these arrangements. LITs work as mediators between you and creditors, helping you get back to a stable financial footing while also ensuring your creditors are able to recoup some of their losses.
Here are some of the advantages that come with a consumer proposal:
- It can reduce the overall amount owed by 70-80%
- Unsecured creditors can no longer garnish wages or seize property
- Credit rating is not damaged as much as it would be by bankruptcy
- As long as the majority by dollar value of unsecured voting creditors agree, the proposal applies to all creditors
If you are considering bankruptcy, a consumer proposal can accomplish the same goal without the onerous legal obligations and can make it easier for you to get out of debt altogether.
Who is Eligible for a Consumer Proposal?
Any individual can apply for a consumer proposal so long as they meet certain basic criteria, namely that they:
- Have less than $250,000 in unsecured debt
- Have a stable source of income
- Be unable to pay debts as they come due
While it is possible to receive a consumer proposal on more than one occasion, negotiations may be significantly more complicated the second time around.
If you have tried debt consolidation or other financial tools for bringing your debt under control, this can complicate the process, so it is best to get in touch with a LIT to explore the range of options available to you.
Bankruptcy is a complex procedure that can have a far-ranging impact on your life and career, and it should be viewed as a last resort for those who have exhausted all other avenues for financial relief.
If you meet the criteria for a consumer proposal and want 2021 to be the year you finally put your debts to rest, a consumer proposal may be the best way to do so.