Debt Relief Experts
Considering a consumer proposal to deal with your debt? You’ve probably come across various claims online about what a consumer proposal involves. Let’s clear up some common misconceptions so you can make an informed decision about your financial future.
Table of Contents
Myth #1: Consumer Proposals Require Large Upfront Fees
No, there are no upfront fees to file a consumer proposal when you work with a Licensed Insolvency Trustee. The trustee’s fees come from your proposal payments, not your pocket. While trustees do receive the first $1,500 from your payments and 20% after that, this money comes from what would have gone to your creditors – not as an extra charge to you.
Be wary of unlicensed debt consultants who charge preparation fees. You should never pay anyone to help you file a consumer proposal except through your approved proposal payments. Only Licensed Insolvency Trustees can administer consumer proposals in Canada. No other debt advisor or credit counsellor can administer this government debt relief program.
Myth #2: Licensed Insolvency Trustees Work For Banks
Licensed Insolvency Trustees are licensed by the government, not banks or creditors. We are regulated and closely supervised by the Office of the Superintendent of Bankruptcy (OSB), a federal government agency that oversees all bankruptcy and insolvency proceedings in Canada. The OSB monitors our work, conducts regular audits, and ensures we maintain strict professional standards. We serve as impartial officers of the court, working to find solutions that work for both you and your creditors. Our role is to strike a balance – proposing an amount that creditors will accept while ensuring you can comfortably make the payments.
Myth #3: Consumer Proposals Permanently Damage Credit Scores
A consumer proposal appears on your credit report as an R7 rating and stays there for three years after completion or six years from filing, whichever comes first. While this does impact your credit, it’s not as severe as bankruptcy, which shows as an R9 and remains for six years after discharge. It may also surprise you to hear that a debt management plan has a similar impact on your credit report but does not offer debt relief.
The goal of a consumer proposal is to help you become debt-free so you can rebuild your credit on a stronger foundation. With lower monthly payments than other debt solutions, you’ll have more money available to start rebuilding your credit sooner.
Myth #4: Everyone Will Know About Your Consumer Proposal
Your consumer proposal is registered with the government, but this isn’t as public as some might suggest. While technically searchable, someone would need to specifically look for your name and pay a fee to find basic filing information. The details of your proposal remain private.
Your employer will not be notified unless we need to stop a wage garnishment. The law also protects you from employment discrimination based on filing a consumer proposal – your employer cannot dismiss, suspend, or lay you off solely because you filed. However, if your job requires bonding, you may need to disclose your filing. Some regulated professionals may also have specific disclosure requirements.
Myth #5: You’ll Lose Your House and Car in a Consumer Proposal
You can keep your house, car, and other secured assets in a consumer proposal. As long as you maintain your mortgage or car payments, these secured assets are safe. In fact, many people find it easier to keep up with secured debt payments after filing a proposal because they’re no longer struggling with other debts. If your mortgage is up for renewal during your proposal, most existing lenders will renew your mortgage without issue as long as your payments are current.
Myth #6: Creditors Won’t Accept Consumer Proposals
At Hoyes Michalos, we have a 99% acceptance rate for consumer proposals. If creditors don’t accept your initial proposal, we can work with them to negotiate terms they’ll accept. Your proposal is accepted if a majority (50% plus 1) of your creditors by dollar value vote to accept it. This means even if some creditors vote no, your proposal can still be approved if creditors holding the majority of your debt agree. Unlike informal debt settlement programs, a consumer proposal is legally binding once accepted, providing you with guaranteed protection from your creditors. This means a consumer proposal can stop collection calls, wage garnishments and lawsuits from all unsecured creditors, not just those who vote yes.
Myth #7: You’ll Never Get Credit Again After a Consumer Proposal
While a consumer proposal does impact your credit, many people successfully rebuild their credit afterward. You can usually qualify for a mortgage two years after completing your proposal with many lenders, often with as little as 5% down. You can get a car loan even during your proposal, though interest rates may be higher initially. Many of our clients qualify for new credit cards within a year of filing, starting with secured credit cards and building from there. Your secured credit card payments, along with regular payments on utilities, rent, and phone bills, all help rebuild your credit history. The key is completing your proposal payments and following a solid credit rebuilding plan.
Myth #8: Government Debts Can’t Be Included in a Consumer Proposal
Many people don’t realize that tax debts and other government debts can be included in a consumer proposal. Whether you owe money to the Canada Revenue Agency for income taxes, GST, or even student loans (if you’ve been out of school for seven years), these debts can be part of your proposal. Credit counselling and debt management plans can’t help with government debts, making a consumer proposal an especially valuable option if you have tax debt or student debt.
Myth #9: My Spouse Will Be Responsible for My Debts
A consumer proposal only affects your personal debts and your credit report. Your spouse’s credit rating and personal debts remain separate from your proposal. However, if you have joint debts or co-signed loans, these must be included in your proposal. In these cases, your spouse would become responsible for repaying joint debts. This is why it’s important to discuss your options with a Licensed Insolvency Trustee who can explain how your proposal might affect joint accounts.
Myth #10: Consumer Proposals Always Take Five Years
While consumer proposals can last up to 5 years, that’s not a requirement. You can complete your proposal in as little as a few months or stretch payments over several years – it’s flexible to your situation. Plus, you can always pay it off early if your financial situation improves.
Ready to learn more about whether a consumer proposal is right for you? Contact Hoyes Michalos for a free consultation. Our Licensed Insolvency Trustees will review all your options and help you find the best path forward for your financial future.
