Consumer Proposals: A “Made in Canada” Solution for Dealing With Debt

The consumer proposal is probably Canada’s best kept secret for dealing with overwhelming debt. Even better, a consumer proposal may be the tool that has the greatest capacity for good given our current economic environment. Today the biggest risk to the Canadian economy isn’t the high dollar, and it isn’t our level of productivity, and it isn’t high taxes or high government spending – it’s the state of our personal finances.

After that controversial statement, let me insert my disclosure. My name is Barton Goth, I am a licensed Trustee in Bankruptcy and Consumer Proposal Administrator here in Edmonton, so I am obviously biased. However, I am not making this statement based solely on observations made in my daily practice, but also based on the current state of our overall economy. Here are the facts:

  • As anyone who owns a house or has invested in the stock market in the last few years knows, our asset values are not increasing like they were back in the 1990s.
  • Household debt is growing much faster than household income, so that today the average Canadian has about $1.47 in household debt for every dollar we earn in disposable income.
  • Debt continues to rise faster than income.

Scary? Yes.

As a result of these alarming trends I think the traditional focus of our finances is going to shift away from saving and investments toward dealing with our massive levels of personal debt.

That’s why I strongly believe that a consumer proposal is one of the most important financial tools available to Canadian families. It’s a tool that gives Canadians the ability to regain control of their finances before they are forced to consider a bankruptcy. As a result, I predict that we will continue to see a major increase in the number of proposals filed as people begin to realize the seriousness of their financial situation and begin to investigate what they can to to solve their financial problems.

For those of you unfamiliar with a consumer proposal, you are not alone. The idea of a consumer proposal is relatively new (first introduced into the Canadian insolvency legislation in 1992), but has provided a way for many Canadians over the years with a “middle of the road” option that has many of the advantages associated with a bankruptcy in Canada, while avoiding some of the more significant disadvantages. A consumer proposal is great for those people who cannot afford to pay their debts in full, but have enough cash flows each month that they should not be forced into filing bankruptcy, a reality that an increasing number of Canadians are faced with each day.

The consumer proposal is one of the options available through the Bankruptcy and Insolvency Act that provides a court approved way to negotiate a settlement with your unsecured creditors (like your credit cards, personal loans, taxes etc.). There are many advantages to filing a consumer proposal, such as:

  • In a consumer proposal you do not automatically lose any of your assets as you would in a bankruptcy.
  • The negative impact on your credit over the long term is less than filing bankruptcy.
  • You are able to bring the payments on your existing debt to a manageable level that will fit in your budget.

Here’s the biggest advantage of filing a consumer proposal: Because your consumer proposal is a court approved settlement, governed by federal law, you only need a majority of your creditors to agree to the proposal, and all creditors are required to accept the proposal.

If you have more debt than you can handle, here is my advice: Act now and schedule a time to review your finances with a consumer proposal administrator. Don’t wait for the collection agents to become aggressive; don’t wait for a wage garnishment to start. Be proactive.. The earlier you recognize the difficulties you face and the earlier you act, the more likely you will be able to qualify to file a consumer proposal and the quicker you will be able to regain control of your finances.

There is hope, but you must take action to deal with your financial problems.