Debt is the bedrock of modern capitalism, and when it is handled wisely it can be a powerful tool for individuals to advance themselves in the world. After all, borrowing money to go to school, buy a house, or purchase a business is a necessity for all but a small percentage of the population, and doing so can unlock financial opportunities that would be otherwise impossible.
Unforeseen circumstances, however, can leave even the most financially careful people saddled with unmanageable amounts of personal debt. This is why countries around the world have instituted bankruptcy and insolvency laws to ensure that unsustainable bad debt doesn’t turn into a life sentence.
When people think of debt relief, they often think of bankruptcy. But while bankruptcy is an essential mechanism to help ensure that people have a way out from debt, it isn’t the only option available. In many cases, it may be possible to complete a consumer proposal that provides necessary debt relief without causing individuals to have their assets completely wiped out.
What is a Consumer Proposal?
Consumer proposals are legally-binding arrangements made between an individual and their creditors that restructures or reduces the amount of money owed.
A consumer proposal essentially gives you the opportunity to strike a bargain with your creditors, ensuring they will still get a percentage of the money owed but allowing you to do so on more favourable and realistic terms.
For those struggling with significant amounts of debt, consumer proposals are preferable for a number of reasons:
- It has a lower impact on credit rating than bankruptcy
- Freezes the value of your unsecured debts and protects you from any collection actions available to your unsecured creditors
- It does not require the agreement of all creditors, only a majority in dollar value must vote in favor of the proposal
If you have considerable debts but are not yet in a position where it is strictly necessary to file for bankruptcy, a consumer proposal can be the perfect way to get immediate debt relief.
How Licensed Insolvency Trustees Secure Proposals
People who want to secure a consumer proposal with their creditors usually work through an intermediary that understands the law and knows how to advocate for a fair deal.
In countries like Canada, this is handled by a Licensed Insolvency Trustee (LIT), who works with both the creditors and the person seeking debt relief while fairly representing the interests of both parties.
LITs are federally regulated, and must abide by strict professional standards. Because LITs work directly with your creditors, you don’t need to be involved in any negotiations. The LIT’s fee comes out of the money available to your creditors, so you don’t need to worry about being stuck with a bill for their services at the end of everything.
Insolvency law has long played an essential role in creating a fairer and more just society. Because these laws give people a chance to get out from under crushing debt, they guarantee that a fresh start is always available to those who want it.
By working as licensed intermediaries, LITs make it easier for ordinary people to secure the debt relief they need while also giving their creditors an opportunity to recoup some of their losses, ensuring that a few years of bad luck don’t turn into a lifetime of financial worries.