A Beginner’s Guide to The Consumer Proposal Process
A proposal consists of a person who is in debt trying to reach an agreement with their creditors. Once your creditors have received your offer, they will take a vote to determine if they accept your terms.
A consumer proposal is a legal process that involves a licensed insolvency trustee mediating the situation. Payments are made through the trustee in control, and they will handle the repayments to your creditors.
Here, we will provide a beginner’s guide to the consumer proposal process.
How Do You Make a Consumer Proposal to Your Creditors?
You must first make an appointment with your licensed insolvency trustee. All debt relief alternatives will be reviewed. The consumer proposal will then need to be worked on. You will then need to file your debt proposal documents without making any errors and your trustee will help you fill them out.
Next, your creditors will need to be notified about your consumer proposal. The creditors will then go over your consumer proposal and take a vote to determine if your proposal is acceptable to them.
If they agree to your terms, you will need to make monthly payments to the licensed insolvency trustee in charge of your case.
While making your monthly payments, you will also be required to attend at least two credit counselling sessions to learn about financial accountability and how to avoid falling into serious debt in the future.
Upon completing the program, you will receive your Certificate of Full Performance to prove that you have successfully finished your counselling sessions. The final step will involve you working hard to rebuild your credit.
Filing a consumer proposal is not easy, but working with a licensed insolvency trustee will make the entire process far more manageable.
What are the Key Benefits of Filing a Consumer Proposal?
Your assets will be protected, meaning you will be able to keep your assets. Examples include the equity you have accumulated in your home over the years, your investments, as well as your tax refunds.
You will also avoid the issue of surplus income. That is, your payments will never go up and will remain fixed: This is in stark contrast to declaring personal bankruptcy, whereby your costs will increase the more you earn.
You will also enjoy lower monthly payments when you file a consumer proposal. It is important to note that you will only be required to pay back a portion of your outstanding debt instead of the entire amount. Some people may receive a debt reduction of up to 70% of what they initially owed.
As such, filing a consumer proposal serves as a debt consolidation plan that is safer and more economical than taking on a second mortgage or debt consolidation loan. Moreover, you will avoid having to declare bankruptcy when you file a successful consumer proposal.
Many clients would like to obtain debt relief but also don’t want to have to declare personal bankruptcy to become debt-free. By working with a licensed insolvency trustee, you will be able to pay back only what you can reasonably afford.
Most creditors will agree to a consumer proposal if they realize that they will receive more money back via a proposal than by a personal bankruptcy settlement.
In addition, you will also receive creditor protection once you file a consumer proposal. As mentioned, a consumer proposal is a legal process. It is filed under the Bankruptcy and Insolvency Act.
As such, you will be protected against wage garnishments as well as harassing calls from collection agencies and creditors. Once most of your creditors accept your proposal, the proposal will be considered legally binding on all of your creditors.
How to Increase Your Credit Score After a Consumer Proposal
Rebuilding your credit score after you file your consumer proposal is of the utmost importance. You will need to make all of your agreed-upon payments, ensuring that you do not delay any of your payments.
By doing so, you will be able to rebuild your credit score rather quickly after you have filed your consumer proposal. Getting a secured credit card will also help as long as you can manage all your payments.
A secured credit card account will require that you pay a deposit, and the amount you deposit will serve as your credit limit. Your payment habits will be sent to various credit bureaus by the company that provided you with your secured credit card.
Opening an RRSP account will also help you build credit quickly. Once your account has been opened, you should ask your financial institution to provide you with a small RRSP loan. By making regular payments on your loan, you will be able to boost your credit score.
If you could pay back the RRSP loan quickly it will be included in your credit report, which will help instill confidence in future creditors.
It is also imperative that you stay within your budget. Working with a financial planner or advisor may help you create a realistic budget to ensure that you do not spend more than what you can reasonably afford every month.
Try to pay with cash for larger purchases, and use your secured credit card to make small purchases that you will be able to pay off to increase your credit score quickly.
Taking the First Step
A licensed insolvency trustee will go over your financial situation and will explain your legal and financial options. They will file your debt solution to change your life for the better and ensure that you fulfill all of your obligations to your creditors.
They will also collect all of the payments you make and distribute the money to all of your creditors on your behalf.
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