The consumer proposal is a legal process in Canada that allows people to settle their financial situation and resolve their debts. Therefore, it is an excellent option for those who are going through difficult times and do not want to avoid bankruptcy. Thus, this article will explain in detail the consumer proposal so that you can identify if it is a good decision for your specific situation.

What is a consumer proposal?

First of all, you need to define the proposal to the consumer, so that you can decide whether to file bankruptcy or proposal. So this is an agreement between a debtor and its creditors outlining the terms of repayment over a period, usually between one and five years.

However, you should be clear that the consumer proposal can only be filed by a licensed insolvency practitioner (LIT) such as, for example, Poupart Syndic in Canada. They are an entity authorized by the government to handle bankruptcy or proposal processes; thus, they will register bankruptcies and proposals and advise the individual. In addition, they are the ones who negotiate with the creditors and fill out the corresponding forms. 

Its objective is to find the best option for all involved in an objective and market-savvy manner. Once the proposal to the consumer is approved, everyone must abide by it. 

How does the consumer proposition work?

The consumer proposal process has several steps. First, your financial situation must be evaluated to determine how much debt and income you have. In addition, you will make a list of all creditors and the amount owed to each.

 You will then meet with an LIT, and together you will review the situation and may be given a sample consumer proposal. If the LIT determines that a consumer proposal is an appropriate option, they will help you prepare it. This includes determining the amount of debt you can repay and the time frame in which you must repay it. The LIT will then negotiate with your creditors on your behalf to reach an agreement.

The final step in the consumer proposal process is to repay your debt according to the terms described. This usually involves making monthly payments over a period. Once you have met the terms, the remaining debt will be forgiven.

Consequences of the consumer proposal

Finally, you must understand the consequences of the consumer proposal in both the short and long term. So, first of all, your credit score will be affected, and the report will remain on your record for up to three years.

Secondly, although it is possible to borrow during a consumer proposal the options are extremely limited and will likely have high interest rates. This is because you are seen as a financial risk. Also, we recommend that you consult with your primary LIT before borrowing during a consumer proposal as you may make your financial situation worse. 

Finally, you must remember that this is a legal agreement, so if you breach the conditions, creditors can take legal action against you.

So, while this can provide relief from overwhelming debt, you should also consider the consequences on your credit score and borrowing potential. It is important to consult with an expert and certified entity to make sure you are making the right decision for your situation, if you reside in the Quebec area, we recommend Poupart Syndic.

 If you want to learn more about bankruptcy filing, personal finance and solving your financial problems, you can also visit our blog or talk to our advisors.