Are you struggling with debt and considering a consumer proposal? Have you recently entered into one? Here’s an A-Z glossary of important terms related to debt and consumer proposals to help inform and empower your decisions.
Complete List of Consumer Proposal Terms
Bankruptcy – When a person is unable to pay their debts, they may choose to file for bankruptcy. Bankruptcy is a formal process where you work with a Licensed Insolvency Trustee (LIT) and sign over all your assets (except those exempt by law) towards debt repayment. When you declare bankruptcy, payments to creditors are stopped, as are any legal actions like wages being garnished. Your first bankruptcy appears on your credit report for six years after your date of discharge and is listed as an R9 rating.
Bankruptcy and Insolvency Act – The Bankruptcy and Insolvency Act (BIA) is the Canadian act that outlines how bankruptcies and insolvencies work in Canada. It also details the roles and requirements of the Superintendent of Bankruptcy, the court, trustees, creditors, consumers and more.
Certificate of Full Performance – When you pay off your consumer proposal amount in full, your Licensed Insolvency Trustee (LIT) will complete a Certificate of Full Performance to make it official. Make sure that your Certificate of Full Performance is shared with the credit bureaus immediately since this will trigger your old debts to be marked as settled and begin the 3-year countdown until the consumer proposal is removed from your credit report entirely.
Consumer Proposal – A consumer proposal is a debt relief program authorized by the government of Canada, which is available to individuals as an alternative to bankruptcy. If you file for a consumer proposal and it’s accepted by your creditors, you’ll pay back a percentage of debts to creditors, distributed over monthly, interest-free payments usually spread over a period of five years. A consumer proposal appears on your credit report for three years after your last payment and is listed as an R7. A consumer proposal must be administered by a Licensed Insolvency Trustee.
Credit Bureau – This term can be used two ways. A “Credit Bureau” is another term for a credit reporting agency (TransUnion or Equifax). Financial industry professionals such as trustees and credit counsellors also often refer to a person’s credit report as their “bureau”.
Credit Counseling – The goal of credit counselling is to help you improve your financial situation by providing advice on various topics like how to budget your money, improve your credit score and create a plan to assist with debt repayment. There are different types of accreditation from province to province, but it’s important to check that the credit counselling agency you work with is trustworthy and their counsellors are qualified.
Credit Counselor – A Credit Counsellor is someone who provides credit counselling. There are many individuals or agencies who might advertise this service without the right education and credentials so before you commit to working with a counsellor, check to see if they’re accredited in your province.
Credit Report – A credit report (also called a “credit bureau” by some industry professionals) is a document meant to show a complete overview of your financial history. It’s important to check your credit report regularly for errors as reporting mistakes do happen. Your credit report is one of the items used by institutions when determining your eligibility for getting approved for credit.
Credit Score – A credit score is a three-digit number assigned to you by the credit bureaus, which include Equifax and TransUnion. Credit bureaus use a mathematical formula to determine your score, taking into account all aspects of your credit report. Just like your grades in school, the higher your credit score, the better it is. A higher score increases your chances of getting approved for a loan and securing a lower interest rate – but you may see a different credit score number depending where you check.
Debt Consolidation – Debt consolidation is the act of combining multiple smaller debts together into one loan. By consolidating all of your small loans, bills and other debts into one, it allows you to focus on one monthly payment rather than managing multiple payments each month.
Equifax – One of the two major credit bureaus in Canada. If you want to request a copy of your Equifax credit report or report an error to Equifax, contact them here.
Insolvency – Insolvency occurs when an individual isn’t financially able to pay their debts on time. Consumer proposals, debt consolidation and filing for bankruptcy are all options for individuals should they become insolvent.
Installment Credit – Installment credit is a type of loan that is extended for a predetermined amount of time, which is often referred to as the term of the loan. This type of loan usually has an amortization schedule to direct the borrower to pay off the principle through fixed installment payments over several years. Mortgages, car loans and student loans are popular examples of installment credit.
Licensed Insolvency Trustee – A Licensed Insolvency Trustee (LIT) is a are federally regulated professional that individuals and businesses can turn to for advice and services when they’re facing debt problems. The goal of an LIT is to help clients make informed financial choices.
Office of the Superintendent of Bankruptcy – The Government of Canada’s Office of the Superintendent of Bankruptcy (OSB) is responsible for the administration of the Bankruptcy and Insolvency Act (BIA) and duties under the Companies’ Creditors Arrangement Act (CCAA). The OSB licenses and regulates the insolvency profession, maintains public records and statistics and more.
Revolving Credit – Revolving credit is a type of credit that replenishes (up to a limit) each time the customer pays off their debt. Credit cards are an example of revolving credit.
Secured Credit Card or Secured VISA – A secured credit card or secured VISA is a type of credit card that is backed or “secured” by a cash deposit from the borrower. This provides the lender with security if the borrower can’t make their payment. A secure credit card is usually issued to individuals with limited or poor credit history.
Secured Debt – Secured debts is a type of debt where the borrower provides collateral for the loan. This could be a cash deposit, a car (for a car loan) or a house (for a mortgage). If the borrower defaults on the loan, meaning they’re unable to repay the debt, the lender can use the collateral to repay the funds.
TransUnion – Alongside Equifax, TransUnion is the other major credit bureau in Canada. If you want to request a copy of your TransUnion credit report or report an error to TransUnion, contact them here.
Unsecured Debt – Unsecured debt is debt that doesn’t involve any form of collateral support, such as a cash deposit from the borrower or a car or house (in the case of a car loan or mortgage). In the event that a borrower defaults on the payments, the lender must seek legal action (such as having a collections agency sue the borrower to garnish wages, file a lien on property, etc.) to be able to collect the balance owed.