When an individual is drowning in debt, often times the first option contemplated is filing personal bankruptcy. Although this option will allow you to find relief from creditors, a bankruptcy isn’t always the right option for everyone.
Upon filing bankruptcy, your credit rating goes to an “R9” with the credit bureau and remains so for six years after you are discharged from bankruptcy. Also, depending on your situation, you may end up losing some of your assets. This becomes a particularly important issue if you own a home with substantial equity.
Therefore, if you’re struggling with debt, make sure you review all of your options as filing bankruptcy might not be the best option for you. A great alternative to bankruptcy is a consumer proposal.
What is a consumer proposal?
Simply put, a consumer proposal is a formal debt settlement option legislated under the Bankruptcy and Insolvency Act and is filed with a licensed trustee in bankruptcy. This option stops further creditor action and allows your debts to be compromised.
A consumer proposal offers a viable and attractive alternative to bankruptcy and has been steadily gaining popularity over the past several years. The benefits of making a consumer proposal are:
Avoids bankruptcy and protect assets
Prevents creditors from taking further legal or collection action against you
Stops wage garnishments, interest and penalties
Bankruptcy and Insolvency Act forces creditors to participate
Ability to compromise debts
Offers flexible payment terms
Allows you to protect assets that would be affected by filing personal bankruptcy
Regarding your credit rating, if you make a consumer proposal your credit rating will be downgraded to an “R9” during the performance of the consumer proposal. Once the consumer proposal is completed, the credit rating will be upgraded to “R7”, and will so remain for three years. After three years, the R7 rating will be deleted from your file.
Therefore, depending on your situation, it may be a better idea to make a consumer proposal. If you book a free, no-obligation with one of the trustees at Welker & Associates, we will review all options with you and together we will decide which option is best for you.
