Determining When It Is Time To File A Consumers Proposal

Individuals who have fallen into debt sometimes come to a point where the money that is owed every month has outpaced the income that is being earned during the same period. There are several options available in this situation. There are loans and other debt relief processes available depending on personal financial history. A person who has an overwhelming amount of debt could consider bankruptcy as a solution. A better choice for many people is to file a consumers proposal. This is an option for households that have become insolvent. The proposal process will help an individual to repay debts without destroying credit or seizing assets. There are several requirements that must be met before a proposal can be filed.

Insolvency

The primary requirement for filing a consumers proposal is insolvency. This means that the amount of debt that must be paid every month or year is more than what is possible with the current income of the debtors. It is not possible to file a proposal if there is enough income coming into a household to pay off the debts that are owed each month. People who are not insolvent are usually directed towards a financial counseling service that will help debtors to establish a budget.

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Debts Are Within The Correct Range

Successfully filing a proposal can only occur if the debts that are owed fall within a specific monetary range. The amount that is owed must be more than $1,000. This minimum amount is easily met by most people because of the accumulated costs of filing a proposal through a trustee. The amount of debt must also be less than $250,000. Households that are in debt for more than $250,000 will need to explore a proposal to creditors. The amount of debt that is owed does not include the mortgage that is held against a primary residence.

Regular Income Is Available

A consumers proposal is only an option for individuals who have a consistent and reliable income. This means a person must be earning enough money to be able to make a lump sum payment to creditors every month. The amount that needs to be paid will be less than what creditors were demanding before the proposal. The source of the income should be very stable. Proposals can stretch out payments for up to five years. Missed payments will eventually result in an amendment or complete annulment of the proposal that could cause serious financial problems.

No Other Options Have Worked

The proposal process is a good choice for consumers who have no other options available to deal with debt. If consolidation loans, credit counselors and creditor negotiations have all failed, then filing a proposal is the next step. Some trustees will want to see that an individual has actually tried alternate solutions. The proposal process is not necessarily easy and there are many points that might not seem fair to debtors. Sticking with the terms of the proposal, however, will help to bring a household out of debt while retaining all of the personal assets of the family.

This post was provided by Ken Lowe, an expert in personal finance. He recommends using the services of André Gabbay et Associés Inc. to file a consumers proposal.

Photo source: http://www.flickr.com/photos/qwrrty/3446221502/

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