Consumer Proposal Eligibility
Will I Qualify to File a Proposal With my Creditors?
In order to be eligible to file a consumer proposal with your creditors you must be insolvent, which means you owe at least $1,000 to your creditors and are unable to repay your debts as they come due.
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Your creditors also must vote to accept your consumer proposal.
The vast majority of proposals are accepted, in part because your trustee, through his experience will draft a proposal that has the greatest chance of being accepted.
The main rule drafting a consumer proposal is your creditors must be better off than if you were to go bankrupt.
There are many factors to consider when deciding if you have consumer proposal eligibility:
• You must be insolvent as explained above;
• You must be a person, as a business is not eligible for filing a consumer proposal, unless the business is a sole proprietorship;
• Your total debts (not including the mortgage on your main residence) must be less than $250,000.
(If you have debts of greater than $250,000 you may be eligible a Division I Proposal);
• Must be able to maintain the payments as laid out in your proposal plan.
For example, your proposal might call for payments of $500 a month for the next 36 months, so you must have a stable income to maintain these payments as missing three payments on your proposal is a serious manner, and your proposal will be cancelled and your debts reinstated, and all payments made to the proposal will be lost;
• You must have no prior proposal proceedings (such as a Notice of Intention to file a proposal.
Can I Enter Into a Consumer Proposal If I Already Went Bankrupt?
Yes, it is possible to enter into a proposal if you are still an undischarged bankrupt.
Section 66.11 of the Bankruptcy and Insolvency Act sets out the eligibility for a consumer proposal, which has a subsection that lays out the eligibility for entering into a proposal with your creditors if you already become bankrupt.
If your consumer proposal is accepted your bankruptcy will be annulled and you will become bound by the terms of the proposal.
You must meet all the factors for eligibility that are listed above to file a consumer proposal if you are already bankrupt.
Why Would I Want to File a Proposal if I’m Already Bankrupt?
There could be several benefits of entering into a proposal even if you are already bankrupt.
A main reason to consider making a proposal is if your financial situation improves drastically which will impact the cost of your bankruptcy as with an increased income you will be required to pay larger surplus income payments to your bankruptcy estate, which could end up being substantial.
With a consumer proposal you can extend the repayment term, which could mean a consumer proposal would result in lower monthly payments than you would be required to pay through surplus income payments in your bankruptcy.
If you are eligible for a proposal, you can solve your financial difficulties by including your unsecured debt in a proposal agreement with your creditors.
As a debt settlement agreement, a proposal allows you to enter into a legally binding debt repayment plan with your creditors that allows you to pay little to no interest and settle your debts for pennies on the dollar.
When you make a proposal it will remain on your credit report for 3 years after its completion, although it won’t impact your score as much as if you were to go bankrupt.
Regardless of the debt relief options available to you, you should explore a proposal if you think you are eligible.
If you are already bankrupt but are thinking about making a consumer proposal you can contact one of our local Licensed Insolvency Trustees to learn more about whether annulling your bankruptcy with a consumer proposal would be beneficial.