The consequences of a consumer proposal

A consumer proposal is an effective debt solution that is gaining in popularity. However, the consequences of a consumer proposal are less frequently discussed. Licensed insolvency trustees have a duty, as professionals, to inform you of the advantages and disadvantages of all the available solutions. With their experience and expertise, their role is to be of counsel in your decision-making process. In this article, our experts explain the consequences of a consumer proposal.

The 5 consequences of a consumer proposal

When debts become increasingly difficult to manage, many indebted individuals opt for a consumer proposal. Like any solution, it has both advantages and disadvantages. Here are the 5 consequences of a consumer proposal:

1. Fixed monthly payment for the entire duration of the proposal.
2. The duration.
3. Possibility of negotiation or rejection by creditors.
4. Excluded debts.
5. Impact on the credit report.

It is essential to be aware of the disadvantages of a consumer proposal to make an informed decision on the best solution for you. Let’s take a detailed look at the 5 main disadvantages of a consumer proposal:

1. Fixed monthly payment
   Although it is possible to plan for varying monthly payments over the duration of your proposal, typically, the proposal will provide for a fixed amount determined at the time of filing the proposal for the entire duration, which can be up to 60 months. During this period, if your income increases, you will benefit from this surplus and your payments under the proposal will not increase. However, in case of a reduction in your income, the monthly payment will remain the same. Note that It is possible to amend a consumer proposal along the way, but this requires the support of a majority of your creditors; otherwise, your proposal will be annulled.
2. Duration
   The proposal can offer a lump sum payable upon its approval, but it usually provides for monthly payments over a maximum of 60 months. For proposals that extend over a long period, they can last longer than a bankruptcy (typically 9, 24 or 36 months, depending on the type of bankruptcy). On the other hand, a proposal can always be paid off sooner, and whenever that is possible, we recommend doing so because the process of restoring your credit report begins once the proposal is completed.
3. The possibility of negotiation or rejection by creditors
   The monthly amount proposed to creditors when submitting your proposal can be subject to negotiation or, in rare cases, rejection. If this happens and the dissenting creditors represent the majority of votes, you may be forced to offer a higher amount than originally proposed. Please note that you have the final say, and at any time, you can withdraw your proposal or declare bankruptcy if you so wish.
4. Excluded debts
   Certain debts, such as child support payments, fines, and recent student loans, cannot be included in a consumer proposal. Additionally, a proposal cannot include debts secured by an asset you wish to keep. For example, if you keep your house or car, the mortgage or car loan cannot be part of your proposal, and the monthly payments required by the contract must continue to be paid in addition to the amount offered in your proposal.Lastly, a proposal must include all your creditors (except for the secured debts mentioned above). Thus, you cannot include only your credit cards and exclude your personal loan. The idea is that all your creditors must be treated fairly.
5. The impact on the credit report
   Although generally less damaging to your credit report than bankruptcy, a consumer proposal will negatively impact your credit rating with Equifax and TransUnion. Any creditor authorized to check your credit reports will be able to obtain the record of your insolvency. However, this note remains on file for 3 years after the proposal ends, whereas a bankruptcy note remains on your file for 6 years (7 years for TransUnion) from the date of discharge and for 14 years for a 2^nd (or more) bankruptcy.

The consumer proposal: an interesting alternative

To have an accurate picture of what the best solution for you might be, it is highly recommended to consult an insolvency professional, such as a trustee, at the first signs of financial difficulty. The earlier you seek advice, the more options you will have at your disposal. Despite the disadvantages highlighted in this article, the numerous benefits of making a consumer proposal usually outweigh them.

At Jean Fortin & Associés, booking an appointment is simple and efficient. This meeting can be conducted over the phone, via video conference, or in person, according to your preference. You will quickly get an analysis of your financial situation and a full explanation of the solutions available to you. The steps of the consumer proposal, if that is your choice, will be explained to you in detail to help you reduce the burden of your debts.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee