Canadian Consumer Proposal Laws
Dealing with debt can be a daunting task, and if you’re facing financial challenges, the Consumer Proposal Laws in Canada may provide a lifeline. This comprehensive guide offers a detailed exploration of Consumer Proposal Laws in Canada, providing insights into the legal framework that could potentially offer significant debt relief.
Understanding Consumer Proposals
A Consumer Proposal, under the Canadian Bankruptcy and Insolvency Act, is a legally binding agreement between debtors and creditors. This arrangement, handled by a Licensed Insolvency Trustee (LIT), is designed to enable debtors to repay a portion of their debt, often significantly less than the total owed, thereby offering an alternative to personal bankruptcy.
Who Qualifies for a Consumer Proposal?
The Consumer Proposal Laws in Canada stipulate specific requirements for qualification. To be eligible for a consumer proposal, you need to be insolvent, meaning your debts exceed your assets or you’re unable to meet your financial obligations. Further, your unsecured debt must fall between $1,000 and $250,000 for individuals, excluding mortgage debts on a primary residence.
Debts Included in a Consumer Proposal
Consumer Proposals primarily deal with unsecured debts, which are not tied to an asset.
These include:
- Credit card balances;
- Personal loans;
- Payday loans;
- Student loans (if the debtor ceased being a student at least seven years prior);
- Income tax debt.
It’s important to note that secured debts, such as mortgages or vehicle loans, cannot be included in a consumer proposal.
The Procedure for a Consumer Proposal
The process of filing a Consumer Proposal involves several critical steps:
Free, Confidential Consultation:
An initial meeting with a Licensed Insolvency Trustee to review all debt relief options.
Consumer Proposal Preparation:
The LIT helps you draft a proposal, outlining your debt repayment plan.
Creditors Review the Proposal:
Once submitted, creditors have 45 days to accept or reject the proposal.
Consumer Proposal Duties:
If accepted, you have certain responsibilities, including making regular payments to the LIT and attending financial counselling sessions.
Debt-Free:
On completion of all payments and counselling sessions, you’ll be legally released from the debts included in the proposal.
Consumer Proposal Pros and Cons
While a consumer proposal can provide significant debt relief and a path to financial freedom, it’s essential to weigh its pros and cons.
Pros:
- Immediate relief from unmanageable debt;
- Consolidation of debt into one manageable payment;
- Usually less expensive than other types of debt relief options;
- Protection from creditors and legal action.
Cons:
- Impact on credit rating;
- Inflexible rules and regulations;
- Limited ability to defer monthly payments;
- Full disclosure of all financial aspects required.
How Consumer Proposals Impact Your Credit
Submitting a consumer proposal will impact your credit score, resulting in an R7 rating on your credit report. This notation indicates that the debtor has entered a settlement with creditors. This rating remains on the report for three years from the date of completion or six years from the filing date, whichever comes first.
Comparing a Consumer Proposal with Other Debt Relief Solutions
When compared to other debt relief options, a consumer proposal can provide significant advantages. For instance, compared to credit counselling, debt consolidation loans, and do-it-yourself budgeting, a consumer proposal typically offers lower monthly payments and a longer repayment period.
Consumer Proposal FAQs
Can I amend a consumer proposal?
Amending a consumer proposal is possible if your financial situation deteriorates. You need to contact your LIT to assess your new circumstances and propose a revised payment plan to your creditors.
Can I file another consumer proposal?
While you cannot file two proposals simultaneously or file another proposal for the same debts included in a prior proposal, you can file a new consumer proposal for new debts after completing the first one.
What happens if my consumer proposal is not accepted?
If your consumer proposal is not accepted, you can make changes and resubmit it, consider other debt solutions, or declare bankruptcy.
Will a consumer proposal affect my co-signer?
If you file a consumer proposal, your co-signer will be responsible for repaying these debts; the debt will not be eliminated unless you file a joint consumer proposal.
What happens if I can’t make my consumer proposal payments?
If you miss three monthly payments or one payment by more than three months, your proposal will be annulled, meaning your creditors can take action to collect the money you owe them.
In conclusion, the Consumer Proposal Laws in Canada provide a legal framework for debtors to negotiate their debts and avoid the severe implications of bankruptcy. However, it’s essential to seek professional advice from a Licensed Insolvency Trustee to make an informed decision based on your unique financial situation.
