While there are many advantages to consider, there are disadvantages in a consumer proposal that you should be aware of.
Disadvantages of Consumer Proposal
The disadvantages of a Consumer Proposal are:
- Your credit rating will be affected
- If you miss 3 months payments the proposal can be cancelled,
- Does not cover secured debt credit/creditors
Secured debts are excluded unless you are turning over (returning) the asset back to the lender .e.g returning the car to the dealership.
Although there is a down side to filing a consumer proposal the benefits for those in overwhelming debt can far outweigh the negative.
Your credit rating in a Consumer Proposal
Most people if they are considering a proposal may already be in a situation where the credit rating has been affected or is about to be.
The advantage is that the proposal will give you a fresh start, while avoiding filing for bankruptcy which would affect your credit for seven (7) years.
Yes, the credit rating is affected, but you’ll save thousands of dollars in debt, and get a chance to start over.
Missing Payments in Consumer Proposals
If you stop making or miss payments in a consumer proposal the proposal will be cancelled, the legal term is Annulled.
Where the debtor misses the equivalent of three (3) months payment in consumer proposal, the proposal will be automatically annulled.
Once there has been an annulment, the proposal is cancelled and:
- all debts are re-instated
- all interest and fees are re-instated
- the proposal cannot be reactivated without permission from the court
Consumer proposals can only be revived/reactivated within a very short time frame, if the creditors agree or with permission from the court.
In most cases where the debtor is unable to make payments the recourse left is to file for bankruptcy.
Consumer Proposals are only for Unsecured Debt
Unsecured credit is credit or loans that you receive where there is nothing to back it up or no security provided for the credit.
Examples of unsecured credit include;
- credit cards, company credit card cards and gas cards
- utility bills like electrical, water or gas bills
- cell phone or telephone bills
- personal loans, rent and medical bills
- student loans
Secured debt is secured by a tangible piece of property that can be seized if the debt is not paid. For example if you stop making payments on your car or home, then the loan or mortgage holder would come and seize the property.
Read more about Secured and Unsecured Debt >>
About the Author
Kelly Dey is a licensed trustee in bankruptcy throughout Ontario.
As a Licensed Insolvency Trustee, she is licensed and regulated by the Superintendent of Bankruptcy to administer proposals and bankruptcies. She continues to actively consult and provide guidance to those seeking to file a bankruptcy or consumer proposal in Ontario.
Yanch Dey & Associates Ltd. offers a wide range of bankruptcy and debt management services in the GTA, Durham Region and County of Northumberland.