Consumer Proposal: A Viable Debt Relief Option

A consumer proposal in New Brunswick is a legally binding process that helps residents manage their debts. It involves working with a Licensed Insolvency Trustee (LIT) to create a proposal, offering to pay creditors a portion of what is owed to them or requesting more time to pay off debts. This process helps individuals avoid bankruptcy, consolidate their debts into a single monthly payment, and protect their assets. It is a popular alternative to bankruptcy, as it has a lesser impact on credit and financial future.

Who Qualifies for a Consumer Proposal?

A consumer proposal is a legally binding agreement made between a debtor and their creditors to pay off their debts. It is a last-ditch effort to settle with one's creditors before declaring bankruptcy.

To qualify for a consumer proposal in New Brunswick, you must meet the following criteria:

• You must have consumer debts of over $5,000 but under $250,000 (excluding mortgages).
• You must have a stable income source, like a job, to be able to afford monthly payments.
• You must not be able to pay off your debts in full.
• You must be unable to get a debt consolidation loan.
• You must want to avoid bankruptcy.

A consumer proposal is a good option for those with a large amount of debt. It is a convenient way to pay off your debt as it consolidates your debt into one payment to all your creditors. It also stops collection action by creditors, including collection calls, wage garnishments, and lawsuits.

A consumer proposal stays on your credit report for seven years and can affect your future credit prospects, similar to declaring bankruptcy.

How Does a Consumer Proposal Work?

A consumer proposal in New Brunswick is a formal and legally binding process that requires the help of a Licensed Insolvency Trustee (LIT). The process is designed to help individuals in financial trouble become debt-free. It is a good alternative to declaring bankruptcy and can protect individuals from debt collectors.

To begin the process, an individual must find a Licensed Insolvency Trustee to work with. The trustee will then help the debtor to come up with a proposal, which is an offer to pay their creditors a portion of what they owe (instead of the entire amount) or a request to extend the amount of time they have to pay off their debts. The proposal will include reasons for being unable to pay the debt back in full and a new payment schedule.

Once the proposal has been filed, the debtor will stop making payments immediately, and any lawsuits or wage garnishments imposed by creditors or debt collectors will also stop. The LIT will then submit the proposal to the creditors, along with a financial report explaining the debtor's situation. Creditors then have 45 days to accept or reject the proposal. If the proposal is approved, the debtor will be responsible for either paying a lump sum or making monthly payments as outlined in the proposal.

A consumer proposal can be a suitable solution for individuals who:

• Owe less than $250,000 (not including their mortgage) and cannot pay their debts in full
• Have a sufficient income to cover a single monthly payment
• Are looking for an alternative to bankruptcy

Advantages of a Consumer Proposal

A consumer proposal is a legally binding process in New Brunswick that can help you take control of your debt. It is a good alternative to bankruptcy, allowing you to pay off your debt without losing your assets. Here are some advantages of a consumer proposal:

Keep Your Assets

One of the biggest advantages of a consumer proposal is that you get to keep your assets, such as your home, car, tax refunds, and investments. This is because a consumer proposal does not include secured debts such as a mortgage or car loan. As long as you can continue to make the monthly payments on these assets, you can keep them.

Lower Monthly Payments

With a consumer proposal, you only repay a portion of your debt, depending on the terms agreed upon with your trustee. It is common for debts to be reduced by up to 70% of the amount owed. This means lower monthly payments and more manageable debt.

No Surplus Income

Unlike bankruptcy, where your payments increase as your income does, a consumer proposal has a fixed payment amount that does not change. This means you can better predict your finances without worrying about increased payments.

Creditor Protection

Once your consumer proposal is approved by your creditors, you are protected from collection calls, wage garnishments, and other collection actions. This provides much-needed relief from the stress of debt collection and gives you a chance to get back on your feet financially.

One Consolidated Payment

A consumer proposal consolidates your debt so that you only have to make one monthly payment to all of your creditors. This simplifies your finances and makes it easier to manage your debt.

Protection from Interest and Penalties

When you file a consumer proposal, all interest charges are frozen, and you are protected from penalties such as late fees. This can help you get a handle on your debt without the added burden of accumulating interest.

Disadvantages of a Consumer Proposal

While a consumer proposal in New Brunswick can be a good option for those looking to avoid bankruptcy, there are some disadvantages to this form of debt relief.

Time

A consumer proposal will usually take longer to complete than a bankruptcy. The lower monthly payments of a consumer proposal mean a longer repayment period. However, if your financial situation improves, you can pay off a proposal early.

Credit Rating Impact

A consumer proposal will affect your credit rating. It will show as an R7 rating and remain on your credit report for up to six years from the date of filing. This may make it difficult to borrow money or obtain loans in the future.

Strict Proposal Terms

Adherence to proposal payments and agreements is crucial. Missing payments or falling behind can result in the termination of your proposal terms. This can be challenging if your income is unstable or inconsistent.

Income and Asset Considerations

If you do not have a significant income or assets that could be seized, a consumer proposal may not be the best option. In such cases, filing for personal bankruptcy might be a more suitable alternative.

Secured Debt Exclusion

It's important to note that a consumer proposal covers only unsecured debts. Secured loans, such as car loans or mortgages, cannot be included in the proposal. This means that you will need to continue making payments on these secured debts separately.

How to File a Consumer Proposal

A consumer proposal in New Brunswick is a formal and legally binding process that requires the help of a Licensed Insolvency Trustee (LIT). The process is designed to help individuals consolidate their debt and make it more manageable. Here is a step-by-step guide on how to file a consumer proposal:

• Find a Licensed Insolvency Trustee: If you live in a larger city in New Brunswick, such as Moncton or Saint John, there will likely be several trustee firms to choose from. Ensure they are licensed and experienced, charge fair prices, and that you feel comfortable working with them.
• Provide Personal Information: Once you have chosen an LIT, provide them with your personal information and details about your financial situation. This includes information about your debts, income, and expenses. The LIT will use this information to assess your eligibility for a consumer proposal and craft a proposal tailored to your circumstances.
• Develop the Proposal: Work with your LIT to develop a proposal for your creditors. This will include an offer to pay a portion of what you owe or a request for more time to pay off your debts. The proposal will also outline the reasons for your inability to pay the full debt and propose a new payment schedule.
• File the Proposal: Your LIT will file the proposal, and you will stop making payments immediately. Any wage garnishments or lawsuits from creditors will also stop. The LIT will submit the proposal, along with a financial report, to your creditors.
• Creditor Review and Decision: Creditors have 45 days to accept or reject the proposal. If you have multiple creditors and one of them is owed at least 25% of your total debt, a meeting will be held for creditors to vote on the proposal.
• Implement the Proposal or Explore Other Options: If your proposal is accepted, you will be responsible for making the agreed-upon payments, either as a lump sum or in monthly instalments. You will also need to attend a minimum of two financial counselling classes. If your proposal is rejected, you can modify and resubmit it or explore other options, such as alternative debt relief solutions or, as a last resort, bankruptcy.

Remember, a consumer proposal is a legal process that offers protection from creditors and helps you consolidate your debt into more manageable payments. It is important to carefully consider your financial situation and seek professional advice before proceeding.

Frequently asked questions