What is a Consumer Proposal?
A Consumer Proposal under the Bankruptcy and Insolvency Act is a legally binding arrangement negotiated with your creditors through a Licensed Insolvency Trustee. Once filed, there is a stay of proceedings which will provide you with immediate protection from certain creditors such as debt collectors. A Consumer Proposal allows an individual to avoid personal bankruptcy and can be an effective alternative. A successful Consumer Proposal allows you to keep control of your assets while your unsecured creditors agree to accept less than what is owed to them in full satisfaction of their claim against you.
Why File For a Consumer Proposal?
If you’re drowning in debt and don’t know how to get out, but you don’t want to declare bankruptcy, a consumer proposal might be right for you. With a consumer proposal, debt collectors have to stop calling you, and your debts are negotiated through the Licensed Insolvency Trustee–in other words, you have a mediator working in your corner to get you the best deal possible. The whole point of a consumer proposal is that you’ll be able to lower your payments to a fixed schedule–they can never go up–and you’ll be able to keep your secured assets like your home and your car, which you may have lost in a bankruptcy.
Not everyone should file a consumer proposal—for some people bankruptcy is the best route –but if you are in the right situation then you owe it to yourself to take advantage of this fully legal and responsible action.
The main benefits of a consumer proposal are:
- You get to keep your assets
- Avoid surplus income (unlike bankruptcy where the more you earn the more you pay, with a consumer proposal the payments are fixed)
- Lower monthly payments
- Get creditor protection
- Avoid bankruptcy
The main disadvantage of a consumer proposal is that it damages your credit score and you may be unable to access credit. The consumer proposal remains on your credit report for a certain number of years depending on the type of consumer proposal.
What Happens When You File a Consumer Proposal?
When you file a consumer proposal:
1. There is a stay of proceedings which takes effect and most wage garnishments can be stopped immediately.
2. Interest on your unsecured debt stops accumulating from the date you file.
3. By law, collection companies and creditors can no longer contact you for payment.
4. Your assets don’t immediately vest with the Licensed Insolvency Trustee.
5. You are offering a settlement to your unsecured creditors where you only need to repay a portion of your debt, with a maximum repayment period of five years.
A Consumer Proposal Can Be Beneficial in the Following Ways:
- You can maintain control of all of your assets, including your home, vehicle and furniture.
- You only need to repay a portion of your debt;
- You do not have to pay interest on your debt while your proposal is in effect;
- Once your proposal has been accepted, your payments will never increase. You will owe nothing more than what has been agreed to in the proposal.
- You can negotiate with your creditors;
- Your creditors are legally bound to the proposal terms, if accepted.
- The negative effect on your credit score is generally not as severe as in a bankruptcy.
Not Sure if a Consumer Proposal is Right for You?
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How to File a Consumer Proposal in Canada
A Consumer Proposal is a legal process under the Bankruptcy and Insolvency Act that must be administered by a Licensed Insolvency Trustee (LIT). Accordingly, your first step is to set up a meeting with someone from an LIT’s office.
An LIT can help you negotiate a fair settlement with your creditors, with manageable fixed monthly payments for up to five years or a lump sum payment. A proposal is approved when the creditors who own the majority of your debt have agreed to the terms of your proposal and the courts approve it. Once accepted, the proposal is binding on all parties. As long as you then fulfill the terms of your proposal, you will be released from the unsecured debts you owed.
Why Would your Creditors Accept a Consumer Proposal?
Most creditors don’t want you to go bankrupt. A Consumer Proposal will typically allow creditors to recover more of the money you owe them than they would if you were to declare bankruptcy.
What Are the Qualifications to File a Consumer Proposal?
A Consumer Proposal may be a viable solution for you if:
- You have debts exceeding $5,000, but not more than $250,000 (excluding your mortgage).
- You can afford to make a payment each month.
- You cannot repay all of your creditors in full with interest.
- You can’t get a debt consolidation loan because your debts are too high.
- You don’t want to declare bankruptcy, because:
- You would be subject to surplus income payments; and / or
- You don’t want to lose control of your assets.
Consumer Proposal FAQs
How much does a Consumer Proposal cost?
In most cases, the administrator will be paid from the proceeds of the proposal. The administrator’s fees are set by the Office of the Superintendent of Bankruptcy
What are the qualifications to file a Consumer Proposal?
- You are insolvent (your debts are greater than the value of your assets or you are unable to make payments as those payments are due);
- You have total unsecured debts of less than $250,000 (excluding the mortgage on your principal residence);
- You have no prior Proposal proceedings still open.
How does a Consumer Proposal affect my mortgage?
A Consumer Proposal does not affect secured debt, such as a mortgage. You will still need to make your regular mortgage payments if you make a Consumer Proposal.
Is A Consumer Proposal the Right Option for Me?
A Consumer Proposal could be a viable solution if you are earning income but still struggling to get out of debt. A Consumer Proposal could help you get out of debt and start fresh.
A proposal administrator can help you by meeting with you and working out a payment plan, and then presenting that plan to your creditors. If your creditors and the court accept your proposal, it becomes a legally binding settlement of your unsecured debts.
Contact us to arrange a no-charge confidential consultation with a Licensed Insolvency Trustee to review your situation and all of your options.