Tag: debt relief options

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CONSUMER PROPOSAL FAQs TO HELP YOUR INSOLVENCY IQ(s)

consumer proposal faqs

Consumer proposal FAQs: What is a consumer proposal?

Last week we discussed Consumer Proposal Vs Debt Settlement. Consumer proposals remain a hot topic and today we’d like to share with you some of our consumer proposal faqs.

A Consumer Proposal (Plan or CP) is a formal way governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee acting as your Plan administrator you make a proposal to:

  • Pay your creditors a percentage of what you owe them over a specific period
  • Extend the time you have to pay off the debt
  • Avoid bankruptcy

Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The debt must be paid off within five years.

Consumer proposal FAQs: How do I qualify for a consumer proposal?

As discussed in our last blog, you must be an individual and your total debts must not exceed $250,000 (not including debts from a mortgage or line of credit secured by your principal residence).

You must also meet the insolvency test. This means that:

  • your debts are greater than your assets;
  • if you liquidated all of your assets you would not have enough money to pay off your debts in full; and
  • you are having trouble making the full payment on all of your debts every month.

Making only minimum monthly payments don’t count as paying off your debts.

Consumer proposal FAQs: What does a consumer proposal cost?

There are no upfront fees associated with CPs. Your Plan payments cover the cost of filing a Plan. There are no separate charges either for filing a Plan or fees paid to the trustee to act as your CP administrator. To calculate the professional fee the trustee uses a formula in the BIA and it comes out of the amount you are paying in your Plan.

Consumer proposal FAQs: How does a consumer proposal work?

A CP allows you to make arrangements to pay all or part of your unsecured debt in monthly payments over a predetermined time period.

  1. A licensed insolvency trustee will meet with you and work out a payment plan that they believe will work for you and be acceptable by your creditors.
  2. The trustee acting as your Plan administrator will file the CP with the Office of the Superintendent of Bankruptcy.
  3. The trustee will send the Plan to your creditors who then have 45 days to accept or reject your CP. The creditors can also accept or reject your CP before a meeting of creditors if such a meeting was held. Normally in a Plan, there is no need to hold a meeting of creditors.

Consumer proposal FAQs: How long will my consumer proposal last?

A CP can last a maximum of five years but you can shorten the proposal term either by increasing the amount of your monthly payment or by offering a lump sum payment (if you are able to borrow a sufficient lump sum from either a bank or family).

Consumer proposal FAQs: Can a consumer proposal get rid of collections agencies and prevent my wages from being garnished?

Yes, a CP immediately stops almost all creditor actions (garnishments for family law support payments cannot be stopped by a consumer proposal) including tax debts.

Consumer proposal FAQs: If I agree to a consumer proposal will I lose my house and my car?

Typically secured creditors are not affected by a Plan and in most cases, you will continue to make your payments as usual. This assumes that your budget, which you prepare as part of filing your consumer proposal, shows that you can afford to do so.

If you have a mortgage against your house or a car loan registered against your car, you can opt for surrendering your house and/or car (secured assets) and stop making those payments before filing the CP. In this case, the lender will sell the secured asset and any resulting shortfall becomes an unsecured debt in your Plan.

NOTE: If you were to give up your secured assets after the filing of your Plan, you won’t be released from any shortfall debt because it occurred after the filing of your Proposal. So make sure that if you are giving up secured assets, you wait for the secured creditors to recognize that you have given them up and they have begun their enforcement proceedings, including selling the home or car, BEFORE you file your CP.

Consumer proposal FAQs: Will I have to give up my credit cards?

Typically, you will have to give all of your credit cards to the trustee and you won’t be able to apply for a new credit card until the term of your CP is over. You will, however, be able to use a prepaid or secured credit card during this period.

Consumer proposal FAQs: If I miss a payment will I be bankrupt?

We strongly recommend you to make your payments faithfully. You can defer up to two payments but if you fall three payments behind, your Plan will end. This means that you will no longer have protection from creditors and they can again start their collection efforts against you.

Consumer proposal FAQs: What is my next step if I have too much debt?

If you’re considering preparing, filing and completing a Plan or are seeking debt relief options contact Ira Smith Trustee & Receiver Inc. Our approach for every file is to create an outcome where Starting Over, Starting Now becomes a reality, beginning the moment you walk in the door. You’re only one call away from taking the steps towards a debt free life.

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CONSUMER PROPOSAL VS DEBT SETTLEMENT: WHAT YOU NEED TO KNOW

consumer proposal vs debt settlement

Consumer proposal vs debt settlement

I am often asked to explain the differences of consumer proposal vs debt settlement. Debt is such a prevalent issue in our society today and we’re bombarded by commercials about different options for debt relief. Two of the most talked about are consumer proposals and debt settlement. However, most people don’t really understand what they are. Let me explain.

Consumer proposal vs debt settlement: What is a consumer proposal?

According to the Office of the Superintendent of Bankruptcy Canada, a consumer proposal (Plan or CP) is a formal, legally binding process administered by a Licensed Insolvency Trustee (LIT). In this process, the LIT will work with you to develop a Plan. A CP is an offer to pay creditors a percentage of what is owed to them or extend the time you have to pay off the debts, or both.

The term of a Plan cannot exceed five years. Payments are made through the LIT. The LIT uses that money to pay each of your creditors. CPs are government sanctioned, federally regulated and administered by federally licensed and regulated LITs.

Consumer proposal vs debt settlement: Can anyone who owes money opt for a consumer proposal?

No. You must be an individual and your total debts must not exceed $250,000 (not including obligations from a mortgage or line of credit secured by your principal residence). You also must meet the insolvency test. This means that:

  • your liabilities are greater than your assets;
  • if you liquidated all of your assets you would not have enough money to pay off your liabilities in full; and
  • you are having trouble making the full payment on all of your liabilities every month.

Making only minimum monthly payments don’t count as paying off your liabilities.

Consumer proposal vs debt settlement: What is debt settlement?

Many people are seduced by slick ads and even slicker salespeople offering an easy way out of financial problems. Debt settlement companies (DS companies) tell you that they’ll negotiate with your creditors to accept a fraction of what you owe them. They tell you that like magic, your debt problems will disappear. NOT TRUE!

DS companies’ people are not financial services professionals. DS companies are not federally licensed or regulated. They’re nothing more than snake oil salesmen. They are well-known for high-pressure sales tactics, making false and unsubstantiated claims, insinuating ties to the government and demanding big upfront fees. We’ve written several blogs warning the public about DS companies:

According to Credit Canada Debt Solutions:

  • There are more than 50 organizations offering debt settlement services in Ontario.
  • The Ontario Association of Credit Counselling Services has received more than 100 complaints a month about DS companies.
  • Settlement companies have also been the focus of a “consumer alert” from the Financial Consumer Agency of Canada, which warns consumers to beware of “too good to be true” offers from debt reduction companies.

According to the U.S. Federal Trade Commission:

  • The success rate of for-profit DS companies is less than 10%.
  • 65% of people who pay fees to these DS companies leave their programs without ever receiving a settlement.
  • The amount of money that people pay in fees to these companies almost equals the amount of money that they save. However, this is before creditor late fees, penalties and interest are added in (these can often double or triple a debt by the time a settlement is negotiated). So at the end of the day, it seems fair to say that most people who deal with these companies do not save any money and are often left worse off in the end.

Consumer proposal vs debt settlement: Who can administer them?

Since LITs administer CPs, the only federally licensed and strictly regulated professionals, they really can help you deal with financial problems. DS companies are not professionals of any kind. They are slick sales organizations designed to make as much money as possible from the consumer, not save you money or repair your financial situation. More often than not, after taking your money, DS companies then hand you over to a LIT for the only liability settlement program that really works, which is called, a consumer proposal.

The choice is clear when it comes to consumer proposal vs debt settlement, consumer proposals are an excellent financial relief option and you should run from DS companies as far as your shoes can carry you.

Sometimes a settlement is also termed consolidation. Whether the question is consumer proposal vs debt settlement, consumer proposal vs debt consolidation or debt settlement vs consumer proposal Canada, there is only one correct answer – look at a Plan for financial relief.

Consumer proposal vs debt settlement: Is a consumer proposal right for me?

Consult a LIT. We are financial professionals who will evaluate your situation and recommend which financial relief options are right for you. A CP is one option; there are others as well.

Contact Ira Smith Trustee & Receiver Inc. today for a free consultation. You’ll be in good hands and Starting Over, Starting Now you can be well on your way to living a liability-free life.

Call a Trustee Now!