Over the last while, I’ve had many calls from people looking for debt consolidation loans. Helpful consolidation loans come from reputable financial institutions where the interest being charged is at prime rate plus a few – even five or six percentage points – such that the total interest being paid on the loan is under ten per cent.
But there’s a problem: many of the people who reach out to a Licensed Insolvency Trustee for help with their financial situations are not candidates for that helpful type of consolidation loan. Instead, they are more likely to be offered a loan by a third-tier lender at an interest rate equal to or above 29.9%. If you are trying to reduce your monthly payments by consolidating your debts into a single payment, a loan from this type of lender will likely replace one high-rate debt with another.
Instead, why not consider a consumer proposal? A consumer proposal is formal solution under the Bankruptcy and Insolvency Act that allows you to consolidate all of your debts into a single, affordable monthly payment without taking on a loan. When you file a consumer proposal, you are not adding to your debt; you are reducing your indebtedness.
Through the consumer proposal process, debtors can submit a settlement offer to their creditors for a portion of what they owe. That portion typically ranges from between 10 and 50 per cent of your total debt. The amount that the debtor offers depends on their individual circumstances, such as their household income and their owned assets.
Once the proposal is filed, the creditors have 45 days to consider and vote on it. If, within that timeframe, 25 per cent of more of your creditors vote against the proposal and request a creditors’ meeting, that meeting must be held. One of the advantages of a consumer proposal is that, if your creditors don’t accept the original offer, you can always change it to something they are more likely to embrace.
If a meeting of the creditors is not called, they are deemed to have accepted your proposal. Once this occurs, the creditors have a period of 15 days during which they can ask to the court to approve the proposal – this generally occurs automatically after the 15-day period. If the proposal is never accepted, there is no automatic bankruptcy.
Once the proposal has been approved, all the debtor must do is make their monthly payments and attend two financial counselling sessions. One of the great things about a consumer proposal is that there are no additional interest charges, and fees are included in the approved payment plan.
Applicants also get the benefit of financial counselling as part of the consumer proposal process. During our first session, we will discuss budgeting, which is a great way to take control of your financial future. The second session covers financial goals, spending habits, shopping tips, and how to rebuild your credit.
At Caplan Debt Solutions, we file consumer proposals every day and have had great success helping people use this approach to resolve their debt problems. We welcome you to give us a call to learn more about consolidating and reducing your debt through a consumer proposal.