Once debt has become a challenge to manage, the law understands the financial hardship you are experiencing and have legislated a turn around plan called Consumer proposal.
This allows you to tell your creditors to freeze payments and stop accruing interest for the term of the loan.
Consumer proposals are alternatives to bankruptcy. They are available to individuals only whose total debts do not exceed $250,000, not including debts secured by their principal residence.
Working with a licensed insolvency trustee you make a proposal to:
- Pay your creditors a percentage of what you owe them over a maximum period of 5 years
- Extend the time to pay off the debt
Advantages of a consumer proposal
The advantages of a consumer proposal are:
- You keep all your assets
- Actions against you by unsecured creditors, such as wage garnishments will be stopped
- Unlike informal debt settlement, the consumer proposal is a legal process where all your creditors must acknowledge your restructuring
- It is not a declaration of bankruptcy
Essentially your trustee is negotiating on your behalf with the lenders to accept the proposal to pay back a portion of what you owe. The lenders have the option to reject the proposal, but they face the risk of the borrower declaring bankruptcy and they won’t receive anything which is why many creditors are willing accept an arrangement.
You are $50,000 in the hole. Taking your income and subtracting your living expenses such as rent, food and miscellaneous costs you can afford to make a payment of $500 a month to your creditors. Your trustee will fill a consumer proposal plan to pay back $30,000; $500 over the course of 60 months.
You can miss two payments, and those missed payments would then be added on to the end of your term, lengthening it by another two months. If, however, you miss a third payment during this process, the proposal is annulled and the creditors will be back on you for their money, including the interest accrued since the time you filed the proposal.