Disadvantages of Consumer Proposal
Possible Disadvantages of Consumer Proposal
However, with every debt relief solution, there are potential downsides. While there are many potential advantages, it’s important to understand the possible disadvantages of consumer proposal processes before you decide if this is the right option for you.
One potential disadvantage that you will want to keep in mind is that a consumer proposal will be noted on your credit report when you file. This can make it difficult for you to get loans in the future.
Credit reports contain R ratings that refer to revolving credit. Revolving credit means accounts that allow you to carry a balance and pay a portion each month, such as a credit card. R1 is considered to be the best rating on a revolving credit account while R9 is used in cases where a loan is considered uncollectable or where a person has included the loan in a bankruptcy. If you file a consumer proposal, the loans included in this proposal will be classified as R7, which shows that they were included in a consumer proposal. This rating can be a problem if you hope to get new credit in the future.
Lenders who see that you have completed a consumer proposal may be less willing to provide access to credit. They may assume that, since you had to file a consumer proposal to deal with your debt in the past, you are a riskier person to loan money to going forward. This can mean that you may not be able to get certain loans or that you may pay a higher interest rate on any loan that you do get,.
However, while a proposal being noted on your credit report can make it more difficult for you to get loans, if you are in a position where you needed to file a consumer proposal, you may have already damaged your credit score.
If you missed payments, made payments late, or borrowed more than you could afford to repay, this will likely have negatively affected your credit score already. When you file a consumer proposal, it puts you in a situation where eliminating your debt is possible, rather than leaving you struggling with debt. Once you have completed your proposal and eliminated your debts, you will be able to rebuild your financial life, work on improving your credit score, and begin living a debt-free life.
Another aspect that some consider being one of the disadvantages of consumer proposal processes is that you still need to pay a portion of the debt you owe. While a proposal usually reduces your financial commitment, you will still be expected to pay a portion of the debt. If you are in a financial situation where you cannot pay even a portion of what is owed, you may wish to consider filing for bankruptcy rather than submitting a consumer proposal. This is another legal debt relief process that can be administered by a Licensed Insolvency Trustee.
Is a Consumer Proposal the Right Choice?
If you’re learning about the advantages and disadvantages of a consumer proposal and wondering if this option is right for you, it’s important to know that the answer of whether or not to consider a consumer proposal depends on your particular situation.
When you meet with a trustee, they will review your situation and let you know what debt relief solutions are available. They will give details on all options, including those that they do not administrate. This is different than some other financial professionals who may only provide details on those options with which they are the most familiar. A trustee will never try to encourage or convince you to choose one option over another. The decision is always entirely up to you.
Once you have the information you need, you can decide which option is right for your situation. Most trustees offer this consultation and review at no charge.
Understanding the potential advantages and possible disadvantages of a consumer proposal is an important part of the debt relief process. The more information you have, the better the decision you will make for your financial future.
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