Can You Negotiate with Creditors on Your Own? | DFI30

Summary

This conversation delves into options for managing debt, focusing on the benefits and drawbacks of a consumer proposal. The discussion contrasts it with traditional loans, highlighting the potential for significant savings despite its impact on credit scores. It also covers scenarios where negotiating debt directly or refinancing with assets may be preferable. The key takeaway is the importance of seeking professional advice to navigate financial challenges and make informed decisions, with the experts offering a transparent approach to finding the best solution tailored to individual circumstances.

Takeaways

• 😀 A consumer proposal can significantly reduce the total debt you owe (e.g., paying $15,000 instead of $50,000).
• 😀 Consumer proposals typically involve no interest, making them a more affordable option compared to loans with high interest rates.
• 😀 If your credit score is already impacted, a consumer proposal may be an effective way to improve your financial situation without paying the full debt.
• 😀 One downside of a proposal is that your credit report takes a hit, but after paying off the reduced amount, you could have saved a substantial amount (e.g., $35,000).
• 😀 While consumer proposals can be beneficial, they may not be the best option if you owe a small amount or have only one or two creditors.
• 😀 You might be better off negotiating directly with creditors if the debt is small, as this would ensure the full payment goes to them, not a trustee.
• 😀 If you owe money to the Canada Revenue Agency (CRA) and can pay it off within a year, negotiating directly might be a better choice than a proposal.
• 😀 Refinancing or using home equity to pay off debts might be a viable option if you have significant assets (e.g., home equity), but be cautious of rising interest rates.
• 😀 Statute-barred debts (debts older than two years without legal action) may not require a consumer proposal, as creditors can no longer take legal action to collect.
• 😀 Seeking professional financial advice is crucial to determine the best solution for your situation, as there are multiple options and each case is unique.
• 😀 A professional can help you navigate different debt management strategies, ensuring you choose the most appropriate option based on your financial circumstances.

Q & A

What is a consumer proposal, and how does it compare to borrowing money from a bank?

A consumer proposal is a formal debt solution in Canada that allows individuals to pay back a reduced amount of their debts, typically with no interest. Unlike borrowing from a bank, where you'd pay back the full debt plus interest (often at high rates), a proposal can reduce the total repayment amount. For example, instead of paying $50,000 to a bank, you might only pay $15,000 through a consumer proposal.

What are the advantages of choosing a consumer proposal over other debt repayment methods?

The main advantage of a consumer proposal is that it allows you to settle your debts for a much lower amount than you owe, often with no interest. This is beneficial for individuals struggling with overwhelming debt, as they can significantly reduce their financial burden. Additionally, a consumer proposal can provide legal protection against creditor harassment and wage garnishment.

What are the potential downsides of filing a consumer proposal?

One of the downsides of a consumer proposal is that it negatively impacts your credit score, although this may not be worse than the existing damage if you're already behind on payments. Also, you’ll need to repay the agreed amount over a set period, typically up to five years, which can still be financially difficult for some people.

Is it always better to go through a trustee when filing a consumer proposal?

Not necessarily. If you owe money to just one or two creditors and feel comfortable negotiating directly with them, it might be possible to handle the situation without a trustee. However, for larger debts or multiple creditors, a trustee can provide professional guidance, simplify the process, and offer protection under the law.

What should you do if you have a small amount of debt and only one creditor, like the Canada Revenue Agency (CRA)?

If you owe a small amount of debt to a single creditor like CRA, and you can afford to pay it off within a short period (e.g., 12 months), you may negotiate directly with them to set up a repayment plan. CRA typically gives you up to 12 months to pay off the debt, and they might extend it to 24 months if you request it.

How does owning assets, such as a home, affect your decision to file a consumer proposal?

If you own assets like a home, particularly with equity, you may be able to use that equity to refinance your debts, which could be an alternative to filing a consumer proposal. Refinancing or taking out a home equity loan might allow you to pay off your debts at a lower cost, though this can become more difficult with rising interest rates or declining home values.

What are statute-barred debts, and how do they impact your decision to file a consumer proposal?

Statute-barred debts are debts that are no longer legally collectible because the creditor has failed to take legal action within the prescribed time limit (typically two years in Ontario). If your debts are statute-barred, you may not need to file a consumer proposal, as creditors can no longer sue you or take further legal action. However, the debt will still affect your credit report.

When might it be better to pay off your debts directly without involving a consumer proposal?

If you owe a manageable amount of debt to a single creditor and can afford to repay it within a short period (e.g., 12 months), paying directly without filing a consumer proposal might make more sense. This avoids additional fees and the complexity of a formal debt restructuring process. Additionally, if you own assets with equity, refinancing might be a viable solution.

What factors should you consider when deciding whether to file a consumer proposal or handle the debt on your own?

Factors to consider include the number of creditors you owe, the amount of debt, your ability to negotiate, whether you own valuable assets, and how long it will take to pay off the debt. If the debt is manageable and you can negotiate directly, handling it on your own might be feasible. However, for larger debts or multiple creditors, a consumer proposal might provide more protection and structure.

How does seeking professional advice help when dealing with debt problems?

Seeking professional advice from a licensed insolvency trustee or financial expert helps clarify your options and ensures you understand the full range of solutions available. They can provide insights into whether a consumer proposal, bankruptcy, or direct negotiation is the best option for your specific situation. This professional guidance helps you make informed decisions and avoid costly mistakes.