In their quest to clear debt, your customers can go through potential options to make sure they’re paying it off in a way that’s best for both parties. One alternative route that can make sense for some is the consumer proposal, and it’s a legal option in Canada.
According to the Government of Canada’s website, a consumer proposal is an agreement between a business and someone who needs to eliminate debt. Although they vary in terms, they’re meant to reduce debt within a five-year span.
The proposal is submitted to you through a third party that’s approved by the government, called a Licensed Insolvency Trustee (LIT). They act as an intermediary to make sure the proposal takes place and that everything is legally binding.
A look at the pros and cons
There are many reasons why a consumer proposal is a great alternative to something such as bankruptcy. The cost to the customer is $1,500, quite a bit less than other legal proceedings to clear debt. It’s also common to pay up to 20% as part of the payment cycle, meant as a service fee for the LIT that sets things up.
There’s a disadvantage to a consumer proposal that does give some customers pause, and that’s the credit rating. According to that government website, a consumer receives the lowest possible credit score upon the proposal’s acceptance. The timing of removal can vary depending on the circumstances as well as the specific province. That’s because different jurisdictions have different rules.
Commonly, the proposal will stay on the credit report for the length of the terms, and then usually a handful of years after. During that time, it’s up to lenders to decide whether to extend credit.
Giving businesses a helping hand
There are several reasons why it could be advantageous for a business to encourage a consumer proposal. According to the NerdWallet website, they include:
- The payments don’t increase month-to-month, even if there are positive changes to a person’s income.
- Businesses don’t have to wait interminably for debt payments, but instead, receive them on a regular schedule.
- Less money is owed per month for the customer.
It’s clear that especially for customers who owe so much that bankruptcy is looming, the consumer proposal is an option that can help everyone involved. At the Debt Control Agency, we can customize the solution for your customer as part of the services we provide.
Among the options you have are first-party recovery, early-stage delinquency, aged debt and third-party collection. Depending on the need, we can take care of the details while always doing that work with data security in mind.