Consumer Proposals - One of Canada's Leading Bankruptcy Alternatives

Note to readers: Consumer Proposals are one of the best bankruptcy alternatives, but they are a legal process only available to residents of Canada. U.S. residents should consider a Chapter 13 Wage Earner Plan.

What is a Consumer Proposal?

A consumer proposal is a negotiated settlement between you and the people you owe money to (your creditors). It's a deal that you make with your creditors as an alternative to bankruptcy.

To file a proposal you need a licensed trustee to act as the administrator of the proposal. The trustee will review your debts and your monthly budget, and work with you to determine what you can afford to offer as a proposal.

A typical consumer proposal would involve monthly payments, such as a payment of $300 per month for up to five years. A consumer proposal may also include a lump sum of money, such as from the sale of a house, or the cashing in of an RRSP. The money is placed in trust by the administrator, and then distributed to the creditors.

At the end of the consumer proposal, all debts are discharged, even if you have not repaid them in full.

What are the advantages and disadvantages of a consumer proposal?

The biggest advantage of a consumer proposal is that most of your debts will be discharged. (Debts such as child support payments or court fines are not discharged in a consumer proposal). In most cases you end up paying less than the full amount owing to discharge your debts.

Consumer proposals also have the advantage that there are no interest charges; all interest is stopped when the consumer proposal starts. Also, you are on a set payment plan, so you know exactly how much you are required to pay each month.

The biggest disadvantage of a consumer proposal is that you now have a payment to make each month. This payment is most likely a lot less than what you were paying when you were trying to service all of your debts, but it is still an obligation that must be factored into your personal budget each month. Don't start a consumer proposal if you can't afford.

In addition, a consumer proposal will remain on your credit report for three years after you have completed making all of the payments. That means that a four year proposal will remain on your credit report for seven years.

If you can afford it, and if you live in Canada, a consumer proposal may be a great bankruptcy alternative for you and your family. More information is available at the consumer proposal information site.