Self-Employed and Considering a Consumer Proposal? 5 Things You Need to Know

Being self-employed comes with several benefits, including being your own boss and having a flexible schedule. However, it also has its share of challenges, especially when you’re facing financial difficulties. Fortunately, you have several debt relief options at your disposal, including filing for a consumer proposal. A consumer proposal is a legal agreement between you and your creditors that allows you to pay off your debts at a more manageable rate.

However, as a self-employed individual, you may have unique concerns when considering a consumer proposal. In this blog post, we’ll explore five things you need to know about filing for a consumer proposal as a self-employed person. We’ve compiled information from various reliable sources, including reputable financial advisors and licensed insolvency trustees, to help you make informed decisions that benefit your financial situation.

1. Insolvency Rules Differ for Self-Employed People

If you’re self-employed and considering filing for a consumer proposal, it’s worth noting that the insolvency rules may apply differently to you than they would for someone working as an employee. In particular, you’ll need to provide additional financial disclosures in your proposal application, including your monthly business expenses, business assets, accounts receivable, and accounts payable.

If your business has a significant amount of unsecured debt, filing for a consumer proposal can be an ideal debt relief solution. However, it’s essential to work with licensed insolvency trustees (LITs) who have experience working with self-employed individuals. They can help ensure your proposal is structured correctly and that you follow the relevant rules and regulations throughout the process.

2. Consider Setting Up a Separate Bank Account for Your Business

As a self-employed individual, separating your business and personal finances can be a smart financial move. It creates a clear financial picture and can help you manage your finances better. Additionally, it can help you make a strong case for your consumer proposal because your business assets and liabilities won’t be mixed up with your personal ones.

A separate business bank account will also reduce the risk of commingling funds, which can have legal and tax implications. It can also help you keep track of your business expenses accurately, making it easier to claim eligible tax deductions that can reduce your taxable income.

3. Providing Accurate and Up-to-Date Financial Information is Vital

Providing accurate and up-to-date financial information is vital for a proper assessment of financial situations. This allows creditors and trustees to have a clear understanding of the debts, assets, and income of self-employed individuals. It also ensures that the proposal’s terms are appropriate, fair, and achievable, making it easier to satisfy creditors and ultimately receive approval.

The Impact of Business Expenses

Self-employed individuals often incur more expenses than salaried counterparts. These expenses can make a difference in determining the income available for the consumer proposal. It is essential to provide accurate and up-to-date information on business expenses to ensure the proposal’s terms are reasonable and attainable.

Income Fluctuations

Self-employment income can be unpredictable and fluctuate. Giving accurate and current financial information illustrates any changes in income in the consumer proposal terms. This will help prevent any misunderstandings and ensure that the proposal is feasible and realistic for the self-employed individual.

A Complete Picture of the Financial Situation

Make sure you include debts, assets, income, and expenses. Giving trustees and creditors all the information necessary will help them make informed decisions and increase your ability to meet the proposal terms.

Prevent Penalties and Possible Rejection

Failing to document accurate financial information can result in severe consequences, and even outright rejection of the consumer proposal. This can lead to further financial issues, including penalties, seizure of assets, and legal action. To avoid such consequences, it’s essential to be transparent and provide truthful information.

4. An Experienced LIT Can Help You Navigate the Process

Filing for a consumer proposal may seem daunting, but it doesn’t have to be. Working with an experienced LIT can make the process smoother and less stressful. They will guide you through every step of the process, from assessing your financial situation to presenting a proposal to your creditors.

A good LIT can also help you understand your rights and responsibilities under the Bankruptcy and Insolvency Act, as well as other relevant rules and regulations. Ultimately, their goal is to help you achieve financial freedom and stability.

5. You’ll Likely Need to Adjust Your Budget and Financial Habits

Filing for a consumer proposal is not a quick fix, and it won’t erase your debts overnight. However, it can be a fresh start towards a debt-free future if you’re willing to commit to making changes to your financial habits and lifestyle. This change may require adjusting your budget or your income-earning potential.

You may also need to avoid taking on more debt and maintaining good financial habits such as timely payments, tracking expenses, and monitoring your credit report. While filing for a consumer proposal may impact your credit score in the short term, it can allow you to regain control of your finances and ultimately lead to a better financial future.

How Can a Consumer Proposal Benefit the Self-Employed?

If you’re self-employed and considering filing for a consumer proposal, it may be the best decision you make. In many ways, a consumer proposal can be more beneficial to the self-employed compared to other forms of debt relief. For example, this strategy allows people to negotiate with their creditors on a lower payment amount while also freezing any interest or additional fees they may incur. Furthermore, having a consumer proposal on one’s record will not hurt their credit score as much as it would if they filed for bankruptcy. As long as the person adheres to the payment plan agreed upon in the marriage counselor proceeding and pays off their debt in full before the end of it, they have a good chance of restoring their financial well-being without damaging their credit profile. With that said, keep in mind that filing for a consumer proposal is still legally binding and should only be considered after consulting with an accredited insolvency trustee – otherwise known as a bankruptcy professional.

How to Get Started with Your Consumer Proposal if You Are Self Employed

Self-employment is a dream for many, but it also comes with many challenges, including financial ones. Being your own boss means that you have to manage your finances on your own, and sometimes, things can get tough. One solution that could help you get back on track is a consumer proposal. However, as a self-employed person, the process may be different compared to individuals who work for a company. Here’s how to get started:

• Consult a Licensed Insolvency Trustee (LIT) – The first step in getting started with a consumer proposal is to consult with a licensed insolvency trustee. They will be able to look at your financial situation and provide you with advice on what to do next. As a self-employed person, they will also be able to advise you on how your income and expenses will impact the process.
• Gather the Necessary Documents – Your LIT will require some documentation to proceed with your consumer proposal. As a self-employed individual, some documents that you will need to gather include your tax returns, business financial statements, and bank statements. These documents will help your LIT assess your financial situation accurately.
• Determine Your Monthly Payment – Unlike individuals working for a company, self-employed individuals’ income is often irregular, making it challenging to determine the right payments’ size. However, LITs are experienced in working with self-employed clients and can guide you in calculating a reasonable monthly proposal payment based on your income and expenses. It is essential to ensure that the payment is affordable to avoid defaulting on the proposal.
• Submit Your Proposal – Once you and your LIT have agreed on the proposal’s terms, you will need to sign the documents and submit them to your LIT for processing. Your creditors will then have 45 days to either accept or reject your proposal. If the majority of your creditors accept the proposal, it becomes legally binding, and you will be subject to the agreed-upon terms.
• Fulfill Your Obligations – Once your consumer proposal is accepted, you will need to fulfill your obligations according to the agreement. This includes making monthly payments on time and attending credit counseling sessions. It is essential to comply with the agreement’s terms and to contact your LIT immediately if you have any issues fulfilling your obligations.

Contact J. Bottom & Associates Ltd.

If you are a self-employed individual struggling with debt, the team at J. Bottom & Associates Ltd. is ready to help. Our experienced team of licensed insolvency trustees provides professional and personalized services that consider your unique circumstances. With our expertise, understanding of self-employment challenges, and personalized debt management plans, you can trust J. Bottom & Associates Ltd. to help you get back on track financially. Don’t let debt continue to negatively impact your life—get in touch with J. Bottom & Associates Ltd. for expert consumer proposal help.