A consumer proposal is an agreement between you and your lenders. It’s administered by a Licensed Insolvency Specialist, who guides you through the terms of a debt repayment plan. The proposal states that firstly you will pay a proportion or all of your unsecured debt which has to be less than the amount of unsecured debt held by your business at the date you apply for a debt management plan. The repayment plan will state that you have an agreed upon amount of monthly payments to make, and you will make these payments to the creditor.
A consumer proposal can be made in connection with any type of personal bankruptcy, including: personal bankruptcy (initiated prior to seven years old), small business bankruptcy, income bankruptcy and mortgage bankruptcy. Personal bankruptcy initiated before seven years old requires that a power of attorney is signed. Power of attorney is required because it authorizes the lender to act on your behalf and enables the lender to contract out your debts. A power of attorney also enables the lender to control your assets and liquidate them if necessary to meet the repayment of your debts. If you’re considering making a consumer proposal, there are many reasons it’s a good idea. Firstly, the longer you wait to start making payments on your unsecured debts, the worse your credit rating gets. This is because a bankruptcy stays on your credit report for seven years and severely hampers your ability to get credit, and subsequently to obtain employment. So if you’re looking to improve your credit rating quickly, then a consumer proposal could be the perfect solution for you.
how a consumer proposal affects your debts
You may be wondering how a consumer proposal affects your debts, and the answer is simple: it will reduce your monthly repayments by an average of about 25%. The way in which it works is that your creditors will agree to accept a lump sum payment of a pre-determined amount rather than continuing with monthly repayments over the term of the agreement. They will use this as a form of payment in order to avoid the long term impact of a consumer proposal. However, they will still report your outstanding debts to the credit bureau, and you’ll find that any future applications for loans or credit cards will be declined.
One of the great things about a consumer proposal is that, by bringing your debts up to date, you can often avoid a winding up petition. A winding up petition, which is what a bankruptcy can result in, means that a court will temporarily halt all collection activity relating to your debts. This can mean that the debts are reported to the credit bureau and can prevent you from obtaining any further credit until the court decides whether or not the action should be continued. With a consumer proposal, you avoid the risk of a winding up petition being issued, and therefore will not find yourself in the situation where you must repay unsecured debts in order to continue with your daily living. It’s important to remember that the amount of money you save with a consumer proposal will depend on how good your repayment habits are. The more you make each month on your debts, the larger the amount you can hope to pay back to your lenders each month. The other thing to bear in mind is that any time you agree to a repayment plan, you are consenting to the inclusion of a credit score in your credit report. This credit score will remain there for seven years. If you neglect to make any payments on a debt settlement agreement, and you do not manage to bring your credit score back up to an acceptable level, the debt agreement will be considered null and void, and any debts that were paid in that period of time will be reported to the credit bureau again.