Understanding How Consumer Proposal in Toronto Works
When you file a consumer proposal in Toronto, you choose another bankruptcy alternative. Not everyone wants to declare bankruptcy, and that’s understandable. You still want to pay your debts and need a little assistance.
If you decide to file a consumer proposal, you will be working with a Licensed Insolvency Trustee. These professionals will help you throughout the process until you and your creditors agree on your debt.
How a Consumer Proposal in Toronto Gives You an Advantage
It can be tough to get stuck in a severe financial problem. Having your debts piled upon you could feel suffocating, and you start feeling like you can’t manage your finances anymore. A consumer proposal takes a significant load off your shoulders.
Consumer proposals help lift off your heavy loans little by little, rather than ending your chances of improving your credit rating. This alternative to bankruptcy lets you continue paying off your loans more efficiently.
How Consumer Proposals Affect Your Credit Rating
One of the most significant advantages to filing a consumer proposal is that you could start raising your credit rating once again. When you have multiple creditors, retaining a good credit rating would seem impossible, especially when you’re struggling.
However, a consumer proposal works in a way that you could pay off your creditors equally regularly. The amount you repay rests on the agreement between you and your creditor. The aim is to lessen your loan debt over the years continuously.
Is a Consumer Proposal Better Than a Debt Management Plan?
One thing you need to know about debt management plans is that they are voluntary. These plans also don’t stop creditors from taking action to collect a loan from you. When you work with a debt management plan, you will still pay everything on your dues.
The critical difference between consumer proposals is that you could get lower interest rates despite having to pay multiple creditors. Legal agreements are also legally binding towards creditors, which prevents them from taking creditor actions against you.
Consumer Proposals and Where They Work
Usually, consumer proposals are applicable in unsecured loans. The use of legal agreements is also wide-ranging. Legal agreements don’t typically work with secured debts, especially those containing collateral.
Unsecured Loans
You can merge several unsecured loans into one fixed monthly payment through consumer loans. You will have to negotiate the reduced total in your consumer proposal. It will depend on whether the creditor agrees with the proposal.
Your unsecured loans include personal debt to friends and family, payday loans, and credit card loans. You have to include all your unsecured loans in your consumer proposal. You will then need to pay all unsecured loans fairly and equally.
Credit Cards
A consumer proposal lets you pay off debts that you could afford. Before, when you had to pay off loans on your credit card, you were charged with high-interest rates, which changed with legal agreements.
You get to pay your debts without any further interest charges. In most cases, credit card lenders agree to write off the rest of the debt. You don’t have to worry about your credit rating and your co-signers.
Collection Accounts
You could settle your debt with collection accounts through the help of a consumer proposal. Your agreement could help you negotiate a repayment plan or a percentage of your loans. Sometimes, the legal deal could ask for extensions to repay the loans.
You will still need to pay off 100% of your loans, and legal agreements help you manage that payment. Creditors often agree with consumer proposals because it gives them a chance to get the payment back compared to bankruptcy.
Lines of Credit or LOCs
Consumer proposals help you make partial payments on your debts. It works with LOCs since you can control the money that you owe. You could reduce a significant amount of your loan and avoid bankruptcy.
You could simplify your debts through legal agreements and eventually reduce monthly payments. The maximum amount that the agreements affect your credit rating in most cases would be around six years.
Qualifying for a Consumer Proposal
If you plan on filing a legal agreement, you need the help of a Licensed Insolvency Trustee or LIT. Before creating any offer, you need to meet up with a LIT. They will determine whether or not you qualify for a legal agreement.
1. Have Existing Debts
You will need to have existing debts and live or have a business in Canada. You also need to have a loan of around $1,000 and are insolvent. You have to prove that you aren’t able to pay back your loans or that you have too many loans compared to your assets.
What if you’re already under bankruptcy? Could you still file a legal agreement? The answer is yes. You just need to remember that the date is the same as the bankruptcy date.
2. Ability to Pay Your Debts Each Month
A consumer proposal is effective when you convince creditors that you can still repay your loans. That is why it’s crucial that you still can pay back your loans 100% to all your creditors.
Remember that you’ll need to ensure that you look financially responsible to your creditors. You want them to trust that the consumer proposal is advantageous to them. Creditors still want you to pay back your loans rather than not pay them at all.
3. Avoiding Bankruptcy
Legal agreements will be a great option if you are still willing to repay your loans. It shows the LIT that you are still willing to work out how you could pay back your loans. By not opting for bankruptcy, you are willing to settle your debt.
Once the LIT checks your information and financial situation, they will inform you of whether or not you could qualify to file a consumer proposal. It’s important to note that not everyone can pass the qualifications, so you will also need to double-check your loan status.
Why Creditors Are Okay With Consumer Proposals
Creditors ultimately want you to pay off your debt. That’s why once you qualify for a consumer proposal, you now have a fresh start to erase your debts and start anew again. You can manage your debt and still keep your lifestyle through legal agreements.
LITs will help you convince creditors that you will pay a percentage of your loans regularly as long as the creditors get your payment on the provided dates. Reduce your debts now through a consumer proposal in Toronto.
