An Alternative To Bankruptcy That More People Are Using Than Ever

Credit monitoring agency, TransUnion, has reported that consumer debt in Vancouver hit $41,077 at the end of 2013—up 7% from 2012, in a recent CBC article. But how does the rest of Canada fair? It doesn’t look good.

Canadians remain on target for a record year of personal debt. At the end of 2013, Canadians owned a total of $27,368 on debts such as lines of credit, credit cards, and car loans. In fact, TransUnion has predicted that the average consumer’s total non-mortgage debt will hit an all-time high of $28,853 by the end of 2014.

One way that Canadians are dealing with rising household debt is to avoid bankruptcy and seek out the option of a Consumer Proposal. In a Globe and Mail article dated August 12, 2013, Canadian bankruptcy has seen a marked decline, while the applications for consumer proposals are on the rise. According to the Globe, “the number of Canadians striking consumer proposals has grown to 40 per cent of total insolvency cases,” a notable jump from 15% in 2006.

What is a consumer proposal?

A consumer proposal is a contract that’s negotiated with your creditors on your behalf by a consumer proposal administrator licensed by the Federal Government, also called a bankruptcy trustee.

A legally binding agreement is put in place to arrange for a partial repayment of your total unsecured debt owing. Under this agreement, you pay a portion of your overall debt, and your creditors will agree to ignore the rest.

The bankruptcy trustee thus sends out a proposal to your creditors asking that they accept payment of less than the full amount of your debt. However, at least 60% of your creditors must agree to the proposal for it to work.

If an agreement is successfully reached, then you would have the opportunity to repay less than the full amount of your debt within 5 years. But if you’re not able to consistently make up your payments on this program, then you might be forced into bankruptcy, given that this is a legal process through the Federal Government.

Advantages

• There is no interest on top of what you have agreed to pay
• Repay less than you owe with a maximum payment period not exceeding five years
• A viable way to avoid bankruptcy
• Creditors and collection agencies can no longer contact you for payment
• You are not in jeopardy of losing your house or other assets

A consumer proposal may be a viable solution if:

• You have debt over $5,000 but not over $250,000--not including home mortgage
• You have a good job and can afford to make payments each month
• You just cannot afford to repay every creditor with full interest
• You can't get a debt consolidation loan because your debts are too high, even with your steady job
• You don't want to lose any of your assets, such as your home or car

A consumer proposal will not:

• Allow you to determine which debts to be included or excluded
• Eliminate support or alimony obligations
• Renege on student loan obligations
• Negotiate on secured debts, such as house mortgage and car loans

Some disadvantages:

• Not all creditors will accept your proposal
• If you default, you're not able to file for another proposal
• It is reported on your credit report, impacting your overall score for 6-7 years
• A fee of around $1,800 is typical, with half up front and the rest after the agreement has been finalized with the creditors.

If you are interested in this further, find a bankruptcy trustee to get a broader picture. There is plenty of information online as well to further help you make this kind of decision.

·