The Truth About Consumer Proposals – Debunking 4 Common Myths

The management of debt can be an intimidating task for many Canadians. Consumer proposals have been identified as a popular debt management solution that can assist individuals in reducing their debts and regaining control over their finances. 

However, misconceptions surrounding consumer proposals may deter people from considering this option. The following are the four common myths about consumer proposals.

Myth #1: Consumer Proposals Negatively Impact Credit Scores

Although filing a consumer proposal affects credit scores, it is not always negative. A consumer proposal has the potential to improve credit scores over time. Even though credit scores initially drop, they are often less significant than the decline experienced by those who file for bankruptcy. 

Consumer proposals remain on credit reports for only three years after payment completion, allowing for credit score rebuilding. Additionally, a consumer proposal can improve credit scores by reducing debt-to-income ratios if individuals have poor credit scores due to high debt levels.

Myth #2: Asset Loss Is Inevitable

There is a common misconception that filing a consumer proposal leads to asset loss. This is not entirely accurate. When individuals file consumer proposals, they work with licensed insolvency trustees to develop proposals that are acceptable to creditors. 

Proposals determine repayment amounts and periods. In many cases, individuals can retain their assets, such as homes and cars, as long as they continue making payments. Asset seizure to pay creditors is a last resort, and trustees typically work with individuals to find solutions that allow them to keep their assets.

Myth #3: Everyone Knows When Consumers File a Consumer Proposal

Consumer proposals are public records. However, this does not mean that everyone knows when individuals file them. Only creditors and those who search credit reports can access information about consumer proposals. 

Moreover, consumer proposals are often viewed as responsible methods for addressing debts, and filing one is unlikely to damage reputations.

Myth #4: Consumer Proposals Can Only be Filed Once

There is a common belief that individuals can only file for consumer proposals once. This is not true. Multiple consumer proposals can be filed if individuals are struggling with debt again. 

Nevertheless, filing numerous consumer proposals can negatively impact credit scores. While bankruptcy filings are limited to once every seven years, consumer proposals have no filing limits.

Final Thoughts

Consumer proposals are a valuable instrument for managing debt that can assist Canadians in reducing their debt and regaining control of their finances. However, misconceptions surrounding consumer proposals can make individuals hesitant to pursue this option.

By exposing these myths, the ultimate goal is to encourage more Canadians to explore consumer proposals as a viable debt management solution. It is essential to always seek the advice of a licensed insolvency trustee if individuals encounter financial difficulties.

Individuals seeking answers to their consumer proposal FAQ can turn to Debt Helpers. Speaking with a licensed insolvency trustee can provide individuals with the information required to take control of their finances. Debt Helpers can assist in navigating the consumer proposal process and developing a plan that matches individual needs.