Every year, an overwhelming number of individuals encounter financial difficulties that appear all of a sudden. These problems Don’t pop up because of the financial mismanagement of individuals. The simple fact is that they are not prepared for upcoming financial issues. A consumer proposal is optimal when the loan burden is very high. 

What Exactly is A Consumer Proposal?

Simply put, a consumer proposal is a formal and legally binding loan settlement agreement between an individual and their creditors in South Africa. Licensed insolvency trustees help create the proposal outlining the partial repayment plan or extending the loan repayment period. It allows creditors to access borrowers’ overall finances and resources and get more favorable outcomes than they might receive in a bankruptcy scenario. If most of the creditors accept the proposal, it becomes a binding agreement, providing the debater with debt relief and a structured path toward financial stability. 

What Will Happen When You File For A Consumer Proposal?

When you submit a consumer proposal, a licensed insolvency trustee will deal with your creditors, complete the paperwork on your behalf, and provide you with a helping hand. 

  • The licensed insolvency trustee sends your consumer proposal to The office of the superintendent of bankruptcy. It will give you immediate relief as debtors or agencies will immediately stop the loan collection call. 
  • The licensed insolvency trustee Will explain your financial condition to the office of the superintendent of bankruptcy and make their members understand why you can pay off the offered amount only. 
  • The creditors have 45 days to either accept or decline your proposal. 

What Will Happen If Creditors Reject Your Proposal?

In case of rejection, you should make some changes to the proposal and re-submit it. It will increase the chances of its acceptance. If not, you should consider other financial options, such as bankruptcy, to pay for mounting debt. 

What Will Happen If Creditors Accept Your Proposal?

If creditors accept your proposal, you need to fulfill the agreement made by them. Depending upon the agreement, you will be asked to prepare the loan in a lump sum or any periodic payment to your LIT, Who will distribute the payments to creditors. You will be given a maximum of 5 years to repay the loan. Once all payments are made, your loan will finally be settled. You will also get a certification for the accomplishment of the program. 

Qualifying Criteria For A Consumer Proposal

  • Only individuals are allowed to make consumer proposals. Companies and businesses are not allowed to do so. 
  • You will have more than ZAR5000 unsecured loans but not more than ZAR250000 (it doesn’t include your mortgage) 
  • You should have an active income source to pay off your monthly installments. 
  • You are unable to repair the loan fully With applicable interest charges,
  • You cannot initiate a second consumer proposal when the first one is already in progress. 

What Are The Main Benefits Of Making A Consumer Proposal?

Making a consumer proposal benefits you in multiple ways. Some of them are detailed below- 

  • You will not have to worry about your surplus income,
  • Your assets remain safe,
  • Your payments will not change even if you have a higher income.
  • Its impact on your credit score is not as severe as in the case of bankruptcy.
  • You are required to pay only a limited portion of your debts. 

What Are The Main Disadvantages Of Making A Consumer Proposal?

While making a consumer proposal benefits you in multiple ways, you also need to look at its disadvantages-

  • It will remove any child support payment, alimony, or obligations you have.
  • Many creditors will not accept your proposal regardless of your financial situation.
  • It will increase the overall amount of secured loans,
  • If you default on one proposal, you cannot file the second. 
  • Always remember that the impact of consumer proposals will reflect on your credit score for 6 to 7 years. This will impact your ability to get a loan up to a great extent. 

The Possibility of Making A Joint Consumer Proposal

Many times, individuals take loans jointly. If you have a situation like this, you can apply make a joint consumer proposal, and get rid of the loan conveniently. But remember that if one member fails to pay off the loan, you will be liable to repay the remaining amount. Consider all aspects of a joint consumer proposal and make an appropriate decision accordingly.