Pay your Consumer Proposal down sooner

Pay It Down Sooner, Rebuild Credit Faster

Many lines of credit and personal loans have all sorts of conditions attached to them. Some loans penalize you for paying them down early (including many mortgages). Other loans come with hefty interest charges that make paying them down close to impossible. But a Consumer Proposal comes with no such conditions, fees or penalties.

One of the major benefits of filing a consumer proposal, rather than a bankruptcy, is the freedom you have to end it earlier (by paying it off ahead of the deadline date). And unlike some of those expensive loans, a Consumer Proposal can be paid down earlier with no penalty charges or interest. In fact, we encourage you to pay down your Proposal as quickly as possible so you can receive your Certificate of Completion and then use it to clear up your credit rating.
 

Shane Offers A Proposal To His Creditors

Let’s take a look at a hypothetical client’s consumer proposal offering. We will call our Proposal debtor Shane. In our scenario, Shane has been burdened for years with crippling debt and a middle management position that has allowed him to pay some of his debts but still kept him from completely clearing up his debt load. Tired of battling to pay down this ever-growing sum, Shane met with us and made the decision to offer his creditors a settlement of $20,000 over five years (which works out to approximately $333 per month for 60 months).

Because Shane had a mid-range income (higher than the average wage earner), he was required to pay more to his creditors. This is known as Surplus Income: that portion of an individual’s income above the allowable income threshold as determined by the standards established by the Office of the Superintendent of Bankruptcy. The combination of his surplus income ($13,000) plus his non-exempt assets (a GIC valued at approximately $3,000) means his creditors would have received an amount close to $16,000 from Shane if he had filed for bankruptcy protection (with payments to be made over a 21-month period of approximately $762 per month).

This monthly amount would have been far too arduous for Shane to pay out on his existing monthly paycheque. Therefore, he opted to streamline his monthly cash flow by stretching out his proposal payments over a five-year period, offering a bit more to his creditors than they would have received in a bankruptcy, in the hope they would vote in favour of the Proposal.

The result? Shane ended up with far more manageable payments stretched out over a longer period of time and the creditors liked the “sweetened” deal he offered them over what they would have received if Shane had opted to file for Bankruptcy protection.
Getting his proposal accepted by his creditors gave Shane the relief from his debt pressures that he needed. Without all of the financial stress wearing him down, Shane was able to focus on the task of locating a new job with a better annual salary.

Now, if Shane had filed a Bankruptcy, this sizable increase in monthly income would have problematic because his surplus income would have also gone up. But by filing a Consumer Proposal, Shane’s payments to the Trustee remained exactly the same. This was because, when Shane’s creditors voted in favour of accepting his proposal terms by the 45-day mark (and with Court approval 15 days later), the payment amount was locked in.

Once Shane began to thrive at his new job, he found he had more money in the bank each month after paying his Proposal fees and monthly living expenses. More money meant Shane had the ability to offer the Trustee a series of lump-sum payments that, within a year, resulted in Shane paying off the balance owing on his Proposal and receiving his completion certificate. To the delight of his creditors (and himself) he had successfully completed his proposal in less than the standard five-year time frame agreed-upon by his creditors.

Approximately 3 years following completion of the consumer proposal, Shane’s credit rating rose to R1 (the best rating available) and his old debts vanished from his credit report. Shane was debt-free, had cash in the bank, and a good credit rating again. He was on the road to a stress-free financial future.

A Debt-Free Future Is Within Reach

Shane’s tale is not unusual – the Consumer Proposal process is designed to be straightforward and simplified, especially when compared to a Bankruptcy.

Getting a Certificate of Completion from the Trustee should be your ultimate goal. Once that piece of paper is in your hands, and you’ve notified the main credit bureaus of the successful completion of your Proposal, you can begin to rebuild your financial life and use credit responsibly and carefully.

That’s the ultimate goal: A fresh start that allows you to put your debt worries behind you and move ahead with new confidence.

How You Can Get The Help You Need

To find out more about how a Consumer Proposal could be a great solution for your financial pressures, please call us toll-free at 310-1100 today. We will explain the process to you in detail and arrange a free, no-obligation meeting for you at one of our 30 offices located across Southern Ontario. (Or, if you prefer a confidential request through our online system, please click here).