3 Things To Know Before Filing A Consumer Proposal


Before choosing any type of debt settlement, it's important to research all your options. By doing this, you will learn the pros and cons of each, and this may help you select the option best for you. One method you might consider using is a consumer proposal, which is a debt settlement plan. This plan offers a way to satisfy your debts by paying less than you owe, but here are three things you should realize before you use a consumer proposal.

It Probably Won't Include All Your Debts

Consumer proposals are great for reducing the amount of money you owe for unsecured debts, but they generally cannot be used for secured debts, such as a house or car loan. Common unsecured debts you can include are:

  • Credit card bills
  • Lines of credit
  • Medical bills

Debts that are now allowed in bankruptcy cases are usually excluded from consumer proposals too. This can include student loans you owe, child support, and taxes. If the majority of your debts fall into these categories, filing a consumer proposal would probably not be helpful for your financial situation.

It Requires a Vote

One of the steps of filing a consumer proposal involves creating a proposal to send to your creditors. A bankruptcy trustee can help you prepare this, and it will have to list your income, bills, and debts. In addition, it will include an offer to your creditors. This offer will be for a certain percentage of what you owe, but you cannot assume your creditors will automatically agree to it.

In order to use a consumer proposal to get out of debt, your creditors will have to vote on it. If the majority of your creditors agree to accept it, then all of the creditors must accept it. The majority is based on the amount of money you owe, not on the total number of creditors.

For example, if you owe $40,000 in debts, the creditors of at least $20,001 of your debts must accept the proposal in order for it to become effective. The creditors only have a limited amount of time to place their votes. If they fail to vote in time, their voting rights are waived in your favor, meaning that these votes will be considered accepted votes.

Your Credit Will Be Affected

A lot of people will avoid filing for bankruptcy because of the affects it has on credit, but you should realize that filing a consumer proposal can also negatively affect your credit. The effects, however, are not as negative as the effects of filing for bankruptcy.

An R9 rating is the worst rating you can have on your credit report, and this happens typically from filing bankruptcy. When you file a consumer proposal, you will automatically get an R7 rating on your credit report. While this is not as derogatory as an R9, it can still cause your credit score to drop.

One of the benefits of this is that an R7 credit rating will be removed from your credit score three years after you make your final payment on the debt settlement plan. Therefore, if you use a consumer proposal, the best thing you can do is to try to pay it off completely as quickly as possible. Once it's paid off, you can begin working on rebuilding your credit, which will be beneficial for your future.

Using a debt settlement plan is a great way to get rid of the debts you have, but it's always important to fully understand the effects of any debt plan you decide to use. To learn more, contact a company that offers debt settlement services.


10 June 2015

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