5 Misconceptions About Consumer Proposals

consumer proposals

While Consumer Proposals have become a popular method for debt relief, many people don’t quite understand what a consumer proposal is and how it works. It may be easy to ask the internet for the answer, but it can be difficult to sort fact from fiction. Below we have listed the 5 most common misconceptions that we have heard about Consumer Proposals and the actual factual information so you can feel confident when selecting this method as your debt relief solution.

  • #1: Trustees that file Consumer Proposals work for creditors.

Some people who struggle with debt are hesitant to file a Consumer Proposal because they are worried that their trustee also works for their creditors. This is simply untrue. Consumer Proposals have to be prepared and administrated by a Licensed Insolvency Trustee (LIT), who is licensed through the government and NOT the creditors. This makes LITs the perfect impartial party to file a Consumer Proposal.
LITs also are not paid by the creditors. A government mandated tariff decides what a LIT gets paid out of the proposal payments to cover administration costs, which means there is no extra cost to the debtor. LITs do not pick sides- they are simply there to help you navigate the road back to financial freedom.

  • #2: Consumer Proposals always take 5 years to complete.

The length of your Consumer Proposal depends entirely on you and your personal circumstances. The misconception that proposals have to take 5 years to complete stems from the fact that a Consumer Proposal can last for a maximum of 5 years, but it can also be as short as 1 month. The length of the proposal is not determined by the LIT or the creditors, but rather how quickly you are able to make repayments. By making extra payments, you can reduce the length of your proposal.

  • #3: A Consumer Proposal will hurt your credit the same amount as declaring bankruptcy.

While it’s true that a note will appear on your credit report after you file a proposal, it is completely different than the note that would appear if you filed for bankruptcy.
When you file for bankruptcy, a note will appear on your credit report that will give you the lowest possible credit score for 6 years from when you were discharged. A Consumer Proposal note only remains on your credit report for a maximum of 3 years, meaning you can start rebuilding your credit debt-free faster.

  • #4: Because a Consumer Proposal is public, everyone will know that you filed one.

It’s true that Consumer Proposals are technically available to the public. When you file a Consumer Proposal, it gets registered with the Federal Government and so appears on the government’s database of insolvency filers. However, to access the records, someone would need to search for you specifically by name and pay the required search fee. Once they have paid to see your specific record, the information included on the record is extremely limited and does not reveal any information on your proposal arrangements.
The fact that Consumer Proposals are publicly registered can actually benefit you. Once a proposal is registered with the government, a legal stay of proceedings is issued which stops creditors from being able to pursue you for collection.

  • #5: You shouldn’t file a Consumer Proposal if you have assets.

If you have a major asset that you don’t want to lose while repaying your debt, a Consumer Proposal may be a good option to consider. Unlike declaring bankruptcy, you do not assigned control of your assets to a trustee. This means that you get to keep your assets, as long as you can afford the payments outlined in your proposal since Consumer Proposals don’t deal with secured creditors.
Submitting a proposal can actually make it easier to keep up with your mortgage payments or car loan installments because it reduces other debt payments. However, if you choose to relinquish control of an asset to help pay off your debts, that decision is entirely up to you. If you choose to surrender an asset, a creditor can file a claim in your proposal for any shortfall.

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If you are interested in learning more about how you might benefit from a filing a Consumer Proposal, start by speaking with a Licensed Insolvency Trustee (LIT). A LIT will explain the process of submitting a proposal and determine whether it is the best financial decision for your personal circumstances.

For a Licensed Insolvency Trustee that provides their clients with high-quality and reliable insolvency services, reach out to the dedicated team at Blanchard & Co. They offer free consultations so you can feel good about starting your journey back to economic freedom.