Consumer Proposal 101 – How Much is Enough Debt to Warrant a Consumer Proposal?
For those struggling with debt, a consumer proposal represents a very valuable debt solution. If you’ve been thinking about taking advantage of such a solution, there are a few things you may want to know, and this week our goal is to help answer those questions.
Firstly, to file a consumer proposal in Canada, you must meet the following qualifications:
- Be an individual (not a business)
- Be unable to pay your debts
- Your total debts must not exceed $250k (not including the mortgage on your principal residence)
- Be able to show that you can pay back the proposal on a monthly basis
- You can’t be an undischarged bankrupt or in an existing consumer proposal
When it comes to how much debt is enough to warrant a consumer proposal, there is no established minimum, but people don’t generally file a consumer proposal unless they owe $8000 or more.
The decision to file a consumer proposal should be less about the total amount of your debt and more about your ability to honour your monthly obligations.
For example, some people who are honouring their monthly payments of debt choose to file a consumer proposal because they can only manage minimum payments and with interest there is no way that they will ever be able to pay off all their debts.
How does a consumer proposal work?
To start, your finances will need to be reviewed and a sum will be arrived at based on a financial calculation of what you can afford monthly. Based on this, a sum that would be distributed to your creditors would be proposed to those creditors as a full and final arrangement.
If the sum is accepted by your creditors, your proposal moves forward.
Once accepted, your overall debt is often reduced, interest stops, collection action stops and you are left making a monthly payment over a term of often 4-5 years. A proposal can be paid in full at any time.
Something to keep in mind is that proposals are administered by bankruptcy trustees, also known as Licensed Insolvency Trustees or LITs. While this individual represents you, they also represent your creditors – they have to do what they believe is best for both parties.
It is always advantageous to first speak with a financial consultant who specializes in consumer proposals to understand the true scope of what you would be getting into, to better understand the pros and cons, and then structure the financial information to later be presented to the trustee. This way you are as protected as possible throughout the process.
At DebtCare, your financial consultant works for you, not your creditors, resulting in the best deal for you! Want to find out more about how consumer proposals work?
Get in touch today by calling 1 (888) 890-0888.