What is the difference between consumer proposal and credit Counselling?
It is common for creditors to refuse interest relief to those debtors enrolled in a debt management plan with a for-profit credit counselling agency. In contrast, if you file a consumer proposal, interest is halted immediately. A debt management plan will not terminate existing lawsuits brought by creditors.
Besides bankruptcy, a Consumer Proposal is the only method in Canada for reducing a balance owing on government debts. Credit counselling plans are severely limited in the types of debts they cover. They may help you consolidate only basic unsecured consumer debts such as credit cards, lines of credit and loans.
Disadvantages of a Consumer Proposal:
A proposal will usually take longer to complete than a bankruptcy. Lowering your monthly payment means longer time paying back, however, if your situation improves, you CAN pay off a proposal early. Credit rating is still affected – A Consumer Proposal DOES affect your credit.
Consumer proposals are usually accepted as filed and negotiations can take place between you and your creditors with the help of your Licensed Insolvency Trustee to gain a positive vote.
What is the difference? A DMP is a voluntary agreement with some or all of your creditors that often includes interest relief and the payment of your debts over time. A consumer proposal is a legal process designed to relieve honest but unfortunate debtors of their debts.
Consumer proposals can provide significant benefits in managing overwhelming debt, making them worth considering. Here are key reasons to explore a consumer proposal: Debt Relief: Consumer proposals offer a structured way to regain control of your finances, preventing debt from snowballing with fees and penalties.
An R1 rating means you make payments on time, whereas an R9 means you have declared bankruptcy. If you have filed a consumer proposal, you will have an R7 rating—a very low credit score that will remain unchanged until your proposal ends.
With a 99% acceptance rate on any consumer proposals we file, we see many Canadians reducing their debt by up to 80% with a consumer proposal. This means that when you file with Spergel, you have a 99% chance of reducing your debt by 80%.
A successful, and completed consumer proposal will be removed from your credit report 3 years after you've paid off all the debts according to the proposal, or 6 years from the date it was filed whichever occurs first.
Creditors sometimes reject consumer proposal offers. Your offer may be too low and your debt too high for them to think your offer is good. When you file your proposal it is very important you understand who your creditors are and how they typically vote.
Do you have to give up credit cards with consumer proposal?
With a consumer proposal, it is also possible to keep any credit cards with a nil balance, but you may want to have a fresh start. You may also want to consider having some credit counselling sessions to ensure you are well placed for managing your credit with a secured credit card.
When you file for a consumer proposal, you will have to hand in any credit cards that are part of the proposal. The creditors will freeze or close the credit card for which you previously qualified. You might have a credit card with a zero balance or a credit balance not included in the proposal.
They can say 'yes' or 'no' to the proposal. If at least half of your creditors vote 'yes,' then the proposal is deemed approved. Banks have 45 days from the date you file the proposal to vote. Banks also have the option to ask for a certain amount of the debt owed to them.
Debt Required to File a Consumer Proposal
To file a consumer proposal, which is a debt option more drastic than debt settlement but only slightly better than bankruptcy, you must owe at least $1,000 in unsecured debt. The maximum that you can owe as a single person and still qualify for a consumer proposal is $250,000.
A Consumer Proposal allows you to make a legal arrangement with your creditors wherein you'll only have to repay a portion of your debts – in full settlement – with no interest, fees or additional penalties. In fact, it's not uncommon for debts to be reduced by 70-80%!
You also cannot file a new consumer proposal on new debts while in an active proposal. If you are unable to pay your monthly bills and consumer proposal payment due to new debts, your option at that point will likely be to file for bankruptcy. A bankruptcy would deal with all of the proposal debts and the new debts.
Debt consolidation is ideal if you're looking to save money on interest and can afford to pay your balance in full. A consumer proposal works best if you're experiencing extreme financial distress and no loan can give you the relief you need to keep up with your payments.
Generally speaking, consumer proposal payments result in settling your debts for roughly 30-40 percent on the dollar. However, the cost of a consumer proposal varies for each person based on a few factors, including income, assets, and debts.
Depending on the credit reporting agency, a consumer proposal can remain on your credit report for either 3 years after you pay off all the debts included in the proposal, or 6 years after you sign the proposal, whichever is sooner.
A consumer proposal does tend to have a negative effect on your credit score rating. However, the negative effect is less drastic compared to bankruptcy. If you're unsure whether you need a consumer proposal, look into other options like debt consolidation or credit counselling.
How many years does a consumer proposal stay on a credit report?
The consumer proposal and all accounts reported as satisfied through the proposal will be removed from your file three (3) years from the date you satisfied the proposal or six (6) years after the date you defaulted on the account, whichever date comes first.
- Monitor your Credit Report.
- Make On-Time Payments.
- Apply for a Secured Credit Card.
- Take Out an RRSP.
- Use a Credit Building Program.
- Set a Budget.
- Develop Healthy Credit Habits.
- Beware of Credit Repair Scams.
In consumer proposals, the amount you need to pay in surplus income will only be calculated at the beginning of the proposal and will remain fixed throughout the duration of it. If your income goes up or down during the proposal, the allocation does not change.
The R7 rating is a specific code used by credit bureaus to indicate that you have entered into a consumer proposal. This code alerts potential lenders and creditors that you are undergoing a debt settlement process.
If you're dealing with debt and want to pay back at least a portion of that debt, you are likely considering a Consumer Proposal.
