# Consumer proposal question please help



## ProudCanuck (May 31, 2016)

Hello guys, 

Looking to get some input on my situation. I will make sure to come back and contribute as well as I go through my own process and share what I learned. 

My wife and I are doing consumer proposals. They will be paid off on September 2019 if we stay the course. 

Wife proposal balance = 23,000 $450 monthly payment
Mine is  = 27,000 $550 monthly payment

We own a home valued at 400K and have refinanced this week and so I have $40,000 with me now available to use. What would you do? what is the best thing to do? 

I know the best thing to do is pay everything off of course, and then get started on the 2 year period before the proposal falls off our credit score. However, we are not looking to buy another home and we are not looking to apply for any type of loan in the near future. All we foresee is maybe 3 yrs time at the earliest we sell our home and buy a smaller place closer to our work. 

I intend to pay off my wife's proposal of 23K. Then we will just have my proposal to deal with. I will continue to pay my proposal monthly at $550 per month and use the $450 I used to pay for her proposal towards mine and as much as possible pay a bit more even on top per month. I will keep the remaining of my money i have in our TFSA and as an emergency fund.

In 3 years time she will have very good credit and mine won't be very good since I expect to still be within the 2 yr after proposal period. Here is where my questions are. When we sell our home and try to buy another one will it be a deal breaker with the bank that my credit won't be as good as hers? I really wonder if there is a huge benefit to me paying off my proposal with the money plus my income this year as soon as possible. Down the road, will it really be a big deal that I have perfect credit since I am not a first time home buyer? 

What would be your game plan? what do you think is the best way to approach this situation. We have been through hell for several years in the past due to an unexpected illness that we have overcome now and things are ok and we are moving on in a positive direction. I really want to make the best decision possible. 

So far I am getting only extreme end of the spectrum advice. A friend is telling me to pay one off and default on the other and the creditors will end up splitting up and separately see if they want to take legal action and since most of them i owe under 5K to they will not bother paying legal fees in the thousands to put a lien on my home. Highest debt I have is a student loan at 16K and if they put a lien on my home they will have to wait until I sell to pay them up. He said as long as i'm willing to have bad credit for 7 years this is one way around it. I DO NOT want to take this road. I am mentioning it only because I don't want someone suggesting this very same thing. 

I would appreciate any input and thank you for your time.

ProudCanuck


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## OnlyMyOpinion (Sep 1, 2013)

- Pay off your debt/proposals as planned, sooner if possible.
- Ignore so-called friends who encourage you to default on your obligations.
- Why the concern about your credit rating? It is only important if you plan to borrow and go into debt. Why would you do that now rather than live within your means? 
- The house thing is a bit muddled. You said you own a house worth $400k, but you just refinanced it to put $40k in you pocket? Then, that you plan to sell and downsize but you are worried about credit /being able to get a mortgage for the less expensive house? Does that mean you don't have any equity built up in your current house?


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## ProudCanuck (May 31, 2016)

Hi, 

Thank you very much for the reply. 

Yes, I am not sure if I should be concerned about my credit rating that much. 

I actually don't want to get any type of loan/credit nor do I need it. 

My only concern is, when I sell my home, is my less than perfect credit rating going to cause big problems when the time comes??

Home is worth no less than 400K and I owe on my mortgage about 270K. 

I'm just trying to figure out if for my situation I should feel in a rush to pay off my proposal asap. I will pay it. But I just wonder if it is critical for me to pay immediately given that we think in a few years we might want to sell and buy. 

I know 100% it would be critical to fix my credit rating if we were planning to buy our very first home. Or if I was planning to apply for a line of credit or a credit card. But in my case, would it be no big deal to just keep paying my proposal until 2019. 

Basically, it will take until 2022 at least for the proposal to roll off my credit report. Jut wondering if in my situation paying it off sooner is a must.
Thank you


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## NorthKC (Apr 1, 2013)

Just a question, are you allowed to pay off the proposal in full? There are usually a lot of restrictions with those with one of them being cannot pay it off in full. If you can, go for it as it'll free up the cash flow of one of the loans for sure.

The refinancing of your home might look a little weird a few years down the road when you go to buy the house but I don't see that as a problem. While the proposal might still have an impact on your credit score when you go to buy another house, I think the fact that it will show that you've paid this in full well before the deadline might give you a boost.


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## OnlyMyOpinion (Sep 1, 2013)

And it sounds like a future mortgage on a smaller house would be no more (hopefully less) than your existing mortgage amount. So if you continue to make your current mortgage payments on time and in full over the intervening years, I think the mortgagee will take that into consideration when it comes time to renegotiate or issue you one for your new place.


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## atrp2biz (Sep 22, 2010)

Does interest continue to tick during a consumer proposal? If not, it may not be worthwhile to pay it all off at once. However, there would be the benefit of closing the consumer proposal sooner to get it off your credit history sooner.

Another problem with paying off the consumer proposal right away may be the tendency to get into debt again. One may be inclined to feel more 'free' and loosen the purse strings a bit. Having the constant overhang of the consumer proposal payments may temper consumption behaviour.

As a contingency, I would use a good chunk of the $40k as an emergency fund in a HISA.


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## sags (May 15, 2010)

I assume from your post you and your spouse are currently involved in consumer proposals.

I would ask 2 questions............1) why would you file a proposal when you had equity in the house and 2) why did you not file a joint consumer proposal ? 

Other than that, all interest is frozen during a consumer proposal, however if you default on the proposal you will be back to square one and owe the full amount (not the agreed upon proposal amount) to the debtors plus interest minus proposal payments.

That is a very bad idea. You would have creditors calling for payment and you would lose the court protection from wage garnishment.

Paying down the proposals early only advantage is to advance the clock for repairing your credit. Regardless, it will still take years to rebuild the credit rating to an excellent score...........maybe 10 years.

I would recommend putting the $40,000 into a TFSA and leaving it there for emergencies and continuing with the proposal. 

If your budget warrants it...........make extra payments to the proposals. If you don't have extra money to apply to the proposal.......you probably shouldn't put all your free cash into paying down the interest free proposal.

If you need a credit card you can get a "secured" credit card. (not a pre-paid credit card). You give them X dollars as a security deposit and they give you a regular credit card with X dollars as a credit limit.

It will take a long time to raise the credit score to excellent levels of 700 plus. Credit will be available sooner, but it will come at a higher interest rate cost.

CMHC have their own criteria for securing mortgages after a bankruptcy or proposal. You should check out the CMHC website if you would need them to finance a mortgage.

If not..........check with the banks. They each have their own credit criteria for mortgages and it changes with economic developments and geography.


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