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Top Questions to Ask Before Committing to a Consumer Proposal

Statistics show that 1 in 4 people in developed countries struggle financially. Facing financial difficulties can be draining and emotionally exhausting, impairing judgment and hindering decision-making. A consumer proposal provides one attractive debt-relieving option in Canada as this legal procedure enables individuals to negotiate repayment terms with creditors directly.

Before agreeing on a consumer proposal, you must ask the right questions to make an informed decision and determine whether this path towards debt repayment is indeed best suited for you. 

Here, we offer help in making decisions that could aid the path toward this future goal of freedom from debt.

Top Questions to Ask Before Committing to a Consumer Proposal

Consult a Local Licensed Insolvency Trustee Firm

As soon as the thought of a consumer proposal pops into your head, consult a licensed insolvency trustee (LIT) to know your options. These professionals are authorized by the government to handle consumer proposals and bankruptcies. They possess the knowledge for evaluating your financial condition and offering personal guidance. 

When it comes to something law-related, it's always a great idea to consult a local LIT in your area. For instance, if you need to file a consumer proposal in Ontario, look for the best LIT in the area according to online reviews and testimonials. Talking to an LIT can assist in explaining what choices are available for dealing with debt and aid in comprehending how a consumer proposal differs from other methods of relief.

What Are the Consumer Proposal Pros and Cons?

Knowing the good and bad sides of a consumer proposal is extremely important before committing. One big upside is that it lets you hold onto your assets. On the other hand, in case of bankruptcy, you might lose some valuable property. A consumer proposal also gives legal safety from creditors, stopping wage deductions and collection calls. Also, it can lessen the sum of debt and prolong the time for repayment to make it more manageable. 

But there are downsides to think about. A consumer proposal will influence your credit score, remaining on your credit report for several years after its finalization. You need to get permission from most of your creditors, and even then, they might not agree with the suggested conditions. Considering these points will assist you in understanding if a consumer proposal matches your money plans.

How Much Will It Cost to File a Consumer Proposal?

Looking at the cost, it's necessary to know that for their services, LITs charge fees which are set by federal government rules. Usually, these charges are included in the monthly payments you make under your proposal. Hence, there is no need to pay them at the beginning. 

The complete cost depends on how complicated your situation is and the extent of debt being dealt with. When you have your first discussion with an LIT, they should explain the fees in a detailed manner. Knowing these costs beforehand can assist you in deciding if a consumer proposal makes financial sense for you.

What Is the Consumer Proposal Impact on Your Credit Score?

The majority of people worry about how a consumer proposal is going to influence their credit score. Truth is, once you make a consumer proposal, it will affect your credit score, but the severity depends on your overall case. 

As we've mentioned, the proposal remains on your credit report for several years, and this can create difficulty in obtaining loans, credit cards, or mortgages with good conditions. 

However, light shines brightly at the end of the tunnel. Making monthly payments and finishing a consumer proposal in time shows your dedication and this can leave a positive impact on future lenders. 

What Are the Alternatives to a Consumer Proposal?

Before considering making a consumer proposal, you need to go over every other possible solution for your situation. There may be alternatives such as debt consolidation or counseling which could provide relief from debt. 

Debt consolidation is a financial strategy in which multiple debts are combined into one loan with lower interest rates to make paying them off easier, reduce total amounts owed, and facilitate payment management. It allows individuals to more effectively control payments as well as lower their total obligations over time. 

Credit counseling helps individuals understand and manage their debt effectively, often leading to the creation of a debt management plan. 

Each option offers its own set of advantages and disadvantages and requires careful research and thought to find what suits best your unique financial circumstances.

What Happens if You Fail to Keep Up Your End of the Deal?

Before you decide on a consumer proposal, it's important to know what will happen in case you flunk. If you don't pay the monthly rates as planned, your proposal might get canceled and then you would lose its safeguarding effects. This implies that creditors can restart their collection actions like taking away from wages or even taking you to court.

Moreover, it's important to note that any payments you have made before defaulting may not be returned. If you do default on your proposal, one choice could be filing for bankruptcy, which also has consequences of its own. 

Talking about possible situations of default with an LIT is crucial for understanding the dangers and making certain you can adhere to the conditions of your proposal.

Bottom Line

Deciding on a consumer proposal requires careful thought and thorough understanding. It is not something that should be made in a hurry. You can make the right decision only by asking the right questions to a certified professional. Although people can share their own experiences, every individual has a unique financial situation, and taking the time to gather information and seek professional advice will help you navigate this challenging period and work towards a more stable financial future.

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