Is a Consumer Proposal a good idea?
Consumer proposals are one way to deal with your debt that you cannot afford to pay, in certain circumstances. Let’s look at what a Consumer Proposal is and if it’s the right choice for you, from a tax debt perspective.
A consumer proposal is a formal proposal or offer to pay creditors a percentage of what is owed to them. It is usually administered by a Licensed Insolvency Trustee. Once a consumer proposal is filed, creditors have 45 days to either accept or reject the proposal. At that point you will stop making direct payments to your creditors and collections actions are stopped.
What are the criteria you need to meet so you qualify to submit a consumer proposal? You need to have a minimum debt 0f a $1,000 and a maximum debt of $250,000, or $500,000 for married couples. Payments will be fixed instalments spread over a maximum of 60 months or 5 years. The cost of filing a consumer proposal include a filing fee – ie $1,500 – and a percentage of your future payments ie 20%.
While a consumer proposal will stop further collections actions and it is less drastic than filing for bankruptcy, it will affect your credit.
In a nutshell: A consumer proposal can be used for most types of unsecured debt such as credit cards, Lines of Credit (LOCs), Unsecured personal loans, Collection accounts. It will grant you a stay of proceedings against you, such a collection actions, lawsuits and wage garnishments. It will get you out of debt for less than the full amount you owe and is a way to protect your assets such as your home, car etc.
But there are a lot of cons to consider as well. A consumer proposal will become part of your permanent public record and affect your credit, thus making it difficult to secure loans in the future. The agreements in the proposal are legally binding, so if they are broken, you will not receive a refund on the fees paid. Generally consumer proposals are more costly than some other debt management options.
What is the alternative for a large tax debt owing that is keeping you up at night? There are ways to reduce penalties and interest on some insolvent accounts and a payment plan can be negotiated with the CRA, that will stop collections actions, release you from liens against your property and restore your
access to your bank accounts, if that is the case. Contact us for a free consultation to explore other avenues before resorting to a Consumer Proposal or bankruptcy.
Written by: Christa Lazar