Car Loan while in Consumer Proposal

Consumer Proposal (Personal Proposal to Creditors)

Consumer Proposal is a deal made to avoid bankruptcy. It is a Debt Management Plan when you can afford to repay a portion (or all) of your debts; you simply need more time to pay.

Unlike a Debt Management Plan, a consumer proposal to creditors is a legally binding procedure that is administered for the courts by a licensed trustee in bankruptcy.

Proposals to creditors are best suited to persons with debts in excess of $5,000 (to a maximum of $75,000), who have the ability to repay a portion of their debt.

The advantages of a consumer proposal are:

Maximum period is 5 years;
If accepted by a majority of your creditors (50% +1) it is deemed to be accepted by ALL of your creditors;

• Interest is frozen at the date you file;

• You can negotiate to repay only a portion of the debt you owe;

• Your creditors are "stayed" (restricted) from taking any legal action against you; and

• Wage garnishments (except for support and alimony) are immediately stopped.

Proposals to creditors were created as one of the alternatives to bankruptcy. If you are in financial trouble and you have the ability to repay a portion of your debt, perhaps a consumer proposal to creditors is the right solution for you.

Once you file a proposal, none of your unsecured creditors can garnish your wages or take you to court until the proposal has been dealt with. In fact, if your wages are being garnished and you file a consumer proposal, the garnishment will stop.

In addition, when you file a proposal to creditors, all of your unsecured debts are frozen and no more interest accumulates against them.

How does a consumer proposal work?

First, a bankruptcy trustee will help you summarize your financial situation and determine how much of a monthly payment you can afford to make. Then, they'll compare that payment to the total amount of your unsecured debt to determine how many months you will be required to pay. If the numbers appear reasonable for both you and your creditors, the trustee will prepare the documents necessary to file a proposal to creditors.

The next step is up to your creditors. Under the Bankruptcy and Insolvency Act ("BIA") your creditors have 45 days to vote for or against your proposal. If a simple majority (50 % +1) vote for your proposal then it is deemed to be accepted by ALL of your creditors. Fifteen days after that, if there are no objections, your proposal will be approved by the Court. From that date forward, both you and your creditors are locked into the terms of the consumer proposal.

Consumer proposals to creditors were created to deal with unsecured debt. An unsecured debt is money owed without collateral. Some examples of unsecured debt include:

Credit cards, Lines of credit , Personal loans, Income taxes

The other type of credit that people usually have is called secured debt. Secured debt is money that was borrowed with a condition that if you fail to make your payments one (or more) of your possessions may be seized and sold by the secured creditor. Some example of secured debt include:

Mortgage, Car loan/lease, Financing contract

In most cases, secured creditors are excluded from your proposal. The exception: if you owe a secured creditor more than the value of the item they hold security over. For example:

How does a consumer proposal affect my credit rating?

As soon as you file a proposal to creditors, rating on your credit report will be revised to either an R7 (paid through a consolidation order, consumer proposal or credit counseling debt management program) or to an R9 (bad debt or placed for collection or bankruptcy) and it will probably remain at this rating until the proposal is completed. In addition, after you complete the proposal, a note will appear in your credit record for up to 7 years from the date that you filed the proposal to collectors.

What this means in terms of getting a Car Loan or Truck Loan:

Once you enter into a Consumer Proposal you are viewed on the same level as somebody who has gone Bankrupt. Yes a consumer proposal is the honourable thing to do when you get into too much debt but in the end it will affect you greatly.

Unlike a bankruptcy which is normally discharged within 2 years a consumer proposal lasts 4 or 5 years. You cannot re-establish your credit until the proposal is completed. This means that you you will be paying very high interest rates until the proposal is completed. Many lenders will not accept somebody who is in a consumer proposal until they have completed half of their payments or more. More than 50% of Canadians who enter into a consumer proposal declare bankruptcy before the proposal is completed.

If you are in a consumer proposal and need a car loan, we can help. We have lenders who will deal with you!