Consumer Proposals in Ontario
A consumer proposal is an offer to pay all your unsecured creditors on payment terms you can afford. Canadian law requires that to file a Consumer Proposal, you must work with an administrator. This is one area our office’s 20 years of debt solutions can benefit you the most. We have offices located in St. Thomas, Chatham, London, Woodstock, and Tillsonburg.
The benefits of filing a consumer proposal in Ontario with our company are immediately apparent and will drastically change your life for the better. More importantly, you will usually make only one payment per month to the administrator with no interest. Payments are determined by your ability to pay, not a creditors’ demands. Other benefits include the following:
- An approved Proposal is legally binding on all unsecured creditors.
- Garnishments are stopped immediately.
- Legal actions are stopped immediately.
- Collection actions are stopped immediately.
- You keep all your assets, unless you include an asset as part of the Proposal.
- Usually only one payment per month to the Administrator with no interest.
- Virtually all types of common unsecured debts are included (including taxes).
- The payments are based on your ability to pay, not a creditors’ demands.
- Payments continue for a set period of time and not more than 5 years.
- Two private credit counselling sessions are included to help you.
Our company also provides two private counselling sessions to manage your consumer proposals will be most beneficial to you, your credit rating, and your elimination of debt over the next few years.
Second Mortgage vs. Consumer Proposal—Which Will Better Help Your Ontario-Based Family?
This example illustrates how our credit and debt counselling can benefit your family. Imagine a married couple with two kids with the following assets:
- Net income after tax is $3,500/month
- Own a house worth $150,000 with a $100,000 mortgage
- Net equity from the house is $35,000 ($150,000 less $100,000 mortgage, less $15,000 estimated selling costs: commissions, penalties, and legal fees)
- $50,000 of unsecured debt: $25,000 on several credit cards at an average of 18.5% interest; and $25,000 line of credit with a bank at 8.5% interest
What will benefit this family more—a second mortgage option, or a proposal option? Let’s run the numbers to see what will help our hypothetical family the most.
Second Mortgage Option
As a variation of debt consolidation, second mortgages can certainly help manage debt. In our example, the couple qualifies for $35,000 as a second mortgage (total mortgage debt equal to 90% of house value) at 8.5% interest repayable over 10 years. The payments on the $35,000 mortgage are used to pay $25,000 on credit cards, $3,000 for broker costs, and $7,000 on the line of credit. The $18,000 balance left on the line of credit is set up as a term loan to be repaired over 10 years.
The payments on the $35,000 mortgage and the $18,000 term loan would be approximately $660/month for 10 years, totaling $79,000, which includes $26,000 interest. In this example, this option is viable for our imagined family; the second mortgage allowed them to start to move out from underneath the crushing wall of debt they faced before.
Consumer Proposal Option
What if our imagined couple chooses a Consumer Proposal over a second mortgage? First, the Proposal must provide more than the $35,000 net house equity for the creditors. For instance, the creditors might accept $40,000 paid in monthly installments of $667 over five years with no interest.
In this scenario, the creditors would be satisfied because they receive the amount they accepted. The example couple is also satisfied because they do not have to file for bankruptcy to meet the creditors’ demands. They can continue to pay off their debts under much more agreeable circumstances.
Overall, the Consumer Proposal option saved our example couple $39,000 total: $3,000 in broker costs, $26,000 of interest, and $10,000 of debt written off. This translates to freedom from debt five years earlier than they would have in the second mortgage scenario.
How Many Consumer Proposal Options Do You Have?
Under the Bankruptcy and Insolvency Act, there are two types of proposals: Division I Proposals and Consumer Proposals. A Division I Proposal is applicable to corporations and individuals, while Consumer Proposals can be filed by individuals, and only if their debt does not exceed $250,000 (not including home mortgages).
The basis for all proposals is to provide a better distribution for creditors than bankruptcy. This process allows an individual or company to maintain control of assets while still settling debts with a variety of creditors.
For more help with your consumer proposal options, visit our Consumer Proposal FAQ page, or call us at 519-433-6703 for additional information and answers to your questions.
What McLay Can Do For You
A consumer proposal that creditors will accept could be the solution to your debt problem, allowing you to finally slam the door on your debt woes. Our company can help you assess your situation through some of the most customer-friendly debt counselling that London, ON, and the surrounding areas have to offer. We will efficiently and effectively help you determine if a proposal is the right move for your family.
We offer credit counselling in Woodstock, London, Tillsonburg, Chatham and St. Thomas because we honestly believe that everyone can work towards financial success. We have been helping people solve their financial problems with courtesy, respect, and dignity for over 20 years.