Consumer Proposals: Frequently Asked Questions
Consumer Proposals are a powerful tool for debt resolution, but they can be complex to understand. This comprehensive guide aims to answer all your questions about Consumer Proposals.
Understanding the Concept of Consumer Proposals
A Consumer Proposal is a structured agreement made with your unsecured creditors to settle your outstanding debt. The primary advantage of this arrangement is the substantial reduction of your total debt, while still enabling your creditors to recover a part of what you owe them.
The payment can be made either in a single go or through monthly installments spread over a defined period, typically not extending beyond five years. This essentially consolidates your numerous debt payments into a single monthly payment.
Beneficiaries of Consumer Proposals
Consumer Proposals are a win-win solution for both debtors and creditors.
Licensed Insolvency Trustees (LITs) tailor your proposal to match your unique financial situation, making it a versatile option for individuals with varying income levels and debt volumes. If you wish to retain assets that might otherwise be claimed by creditors through bankruptcy, a Consumer Proposal can be beneficial.
From the creditor’s perspective, Consumer Proposals often yield higher returns than bankruptcy proceedings. As a debtor, you can take comfort in honoring a part of your debt obligation, and your creditors appreciate the recovery of a portion of their dues.
Approval Process of Consumer Proposals
Once your LIT files your Consumer Proposal, the proposal is brought before your creditors. They have a 45-day window from the filing date to cast their vote in favor of or against your proposal.
During this voting period, discussions may be initiated with any creditor who votes against the proposal. A majority by dollar value must support the proposal for it to be accepted. If a significant percentage of creditors, holding a substantial dollar value of the debt, vote against the proposal, a creditors’ meeting may be convened to decide whether an amended proposal would be acceptable or if the proposal should be rejected.
Completion Requirements for Consumer Proposals
Following the acceptance of your proposal, you need to fulfill these primary obligations to complete the process:
- Payment of the agreed sum within the timeline stipulated in the Consumer Proposal.
- Participation in two counseling sessions conducted by a qualified insolvency counselor.
- Compliance with any other stipulations included in your proposal, as explained by your LIT, if applicable.
- Upon meeting these requirements, you will be issued a Certificate of Full Performance, and your debts will be legally discharged.
Possibility of Early Payment
Absolutely, you can pay off your Consumer Proposal ahead of time. While you have the flexibility to utilize the full duration to pay your proposal, any increase in your income or sudden financial gains such as tax refunds, bonuses, or windfalls can be directed towards your proposal.
Unlike bankruptcy, where you are required to report your monthly income to the Trustee and a surge in income can lead to an increased monthly payment, such a provision does not exist with a Consumer Proposal. You are free to earn as much as you want without affecting your monthly payment.
Impact of Consumer Proposals on Credit Rating
Filing a Consumer Proposal will result in the worst rating (R9) on your credit report for the included debts. This rating will persist till the completion of your proposal, after which it will switch to an R7 rating for an additional three years.
However, paying off your proposal earlier than agreed can expedite your credit recovery. Reducing your proposal duration by a year will lead to the R9 rating disappearing a year earlier, to be replaced by the R7 rating for the next three years.
Protection from Creditors
A Stay of Proceedings is activated as soon as your LIT files your Consumer Proposal. This legal device immediately halts any ongoing collection actions and bars any further collection actions and wage garnishments by your creditors. This includes any harassment from creditors and collection agents over phone calls.
Possibility of Credit During a Consumer Proposal
Indeed, you can obtain credit even while in a Consumer Proposal. However, if consumer debt was the primary reason behind your Consumer Proposal, it is advised to exercise caution while availing credit again. Some individuals prefer to wait for several months or even years before they feel confident about obtaining or using credit again.
Assistance in Filing a Consumer Proposal
Only a Licensed Insolvency Trustee (LIT) is authorized to file a Consumer Proposal. Given their vast experience and comprehensive understanding of the Bankruptcy and Insolvency Act (BIA), LITs are capable of crafting a personalized proposal that aligns with your budget and guarantees a reasonable return to your creditors.
Deciding if a Consumer Proposal is Suitable
To determine if a Consumer Proposal is the right debt resolution strategy for you, consider arranging a Free Confidential Consultation with a Licensed Insolvency Trustee. This will help you evaluate your financial circumstances and make an informed decision.