What are the consequences of a consumer proposal?

The consumer proposal is one way of responding to a situation of indebtedness to creditors. This process, supervised by a licensed insolvency trustee, aims to reach an agreement with creditors in order to reduce the amount of debt and simplify the process.

So let's look at the effects and consequences that the consumer proposal has on the situation of an individual in debt.

1. Impact on credit rating

A consumer proposal temporarily lowers your credit rating, but the effects are less severe than bankruptcy. A bankruptcy is recorded as an R7 on your credit file, whereas a consumer proposal is recorded as an R9.

This indication remains visible for 3 years after the end of payments, or 6 years after the submission of the proposal, whichever comes first.

So, if your proposal lasts 5 years, it will be erased one year after completion, allowing you to rebuild your credit history and financial stability more quickly.

2. Fixed monthly payment

When you submit a consumer proposal, a fixed monthly amount is set according to your ability to repay. This amount remains the same for the entire term of your agreement, generally up to 60 months.

If your income increases, you will benefit from this surplus. On the other hand, if your income decreases, the payment originally planned remains unchanged.

It is, however, possible to modify a proposal during the process, but this requires the approval of the majority of your creditors. Without this agreement, the proposal could be cancelled.

3. Duration of the proposal

A consumer proposal is usually spread over a maximum period of 5 years (60 months), with regular monthly payments.

In some cases, the total term may be longer than a bankruptcy, but it is still more advantageous in the long term, as it allows you to keep your assets and reduce your debts without liquidation.

What's more, you can repay the proposal early, which will speed up the restoration of your credit rating - always a good idea when the situation allows.

4. Debts not eligible for the proposal

The proposal aims to consolidate your unsecured debts, but certain obligations cannot be included, including :

• support payments and judicial fines;

• student loans less than 7 years old;

• secured debts linked to an asset you wish to keep (car loan or mortgage).

For example, if you keep your house or car, the corresponding payments must be continued in parallel. Finally, the law requires that all your unsecured creditors be included in the proposal. It is therefore not possible to choose only certain debts, such as your credit cards, and exclude others.

5. Negotiating with creditors

When you submit your proposal, creditors may accept, negotiate or refuse the amount offered. In rare cases, some may demand a higher contribution. If the majority of votes are against, it is possible to revise your offer or withdraw the proposal and consider another solution, such as bankruptcy.

The important thing is that you retain control. The final decision is yours, and an insolvency trustee will be with you every step of the way.

Take back control of your finances today

A consumer proposal is a simpler way of resolving a debt situation with the help of a licensed insolvency trustee. This method offers legal advantages in terms of protection and the possibility of reducing your debts. However, your credit file is affected in the medium term and a note will be left on it for several years, before disappearing forever.

At Mallette, our trustees offer you a complete and confidential analysis of your situation, in person, by telephone or by videoconference. You'll get a detailed explanation of the options available to you, whether it's a consumer proposal or another recovery plan.

Our aim is to help you lighten the burden of your debts, avoid bankruptcy whenever possible and regain your financial stability with confidence.