As 2020 draws to a close, the world remains in the grip of the worst economic meltdown since the Great Depression. Thousands of businesses have closed, millions of workers have been laid off, and ordinary people everywhere have through no fault of their own been left with unsustainable debts they have no way of paying off. 

Many people impacted by the pandemic recession may no longer be able to cover basic financial commitments like mortgage payments, and bankruptcy can seem like the only way out of the crushing debt burden. 

But depending on where you live, there may be other options available. Homeowners in Canada, for example, may not need to file for bankruptcy in order to ease their debt load thanks to a legal device known as a consumer proposal. 

Consumer Proposals: The Best Alternative to Bankruptcy

Consumer proposals are legally binding agreements that allow people to restructure or reduce their debt, and they are one of the most useful money management tools available to homeowners who are dealing with significant amounts of debt but are not yet in a position where they need to file for bankruptcy. 

Essentially, a consumer proposal is an agreement you come to with your creditors by which you agree to lower your monthly payments and extend them over a longer period time to create a more manageable debt load, or you reduce the overall amount payable. 

A consumer proposal is a good idea for homeowners for several reasons:

• You will likely be able to keep your property
• You can leverage your current assets for a better deal
• You can create a payment plan based around reduced income

Best of all, a consumer proposal doesn’t impact your credit rating as severely or for as long as bankruptcy does. 

How to Negotiate a Consumer Proposal

While there are plenty of debt counselling agencies that offer debt consolidation services, one of the things that makes a consumer proposal unique is that it doesn’t involve taking out a new loan to consolidate existing debt. Instead, a Licensed Insolvency Trustee (LIT) negotiates a consumer proposal on your behalf. 

Because LITs are federally regulated, they are empowered to arrange legally-binding agreements between people and their creditors. Once a consumer proposal has been finalized, both parties are required to abide by the terms. 

Furthermore, LITs are required to mediate between parties to achieve a fair settlement for both sides, ensuring both parties get a say in how things turn out. Creditors are able to recoup more of their losses than in a bankruptcy scenario, while the debtor avoids the onerous experience of filing for bankruptcy. 

Falling deeply in debt is a lonely experience, but it’s even worse when millions of other people are experiencing the same thing with no end in sight. Economists project that the coronavirus recession will continue well into 2021 — a frightening development for those who have been watching their debts mount and their savings dwindle. 

Fortunately, bankruptcy isn’t the only way out. If you want to be proactive about your debt, get in touch with an LIT in your area who can help advise you on whether a consumer proposal might be right for you.