Understanding Consumer Proposal Services in Quebec: A Comprehensive Guide

For individuals struggling with debt in Quebec, Consumer Proposal Services offer a viable solution to regain financial stability ¹. A Consumer Proposal is a legal process governed by the Bankruptcy and Insolvency Act, allowing debtors to repay a portion of their debts based on their income and assets, without the negative consequences of bankruptcy ^1 2.

This comprehensive guide delves into the intricacies of Consumer Proposal Services in Quebec, covering eligibility criteria, the filing process, and the advantages and potential drawbacks of this debt relief option ^3 4 5 6. It also compares Consumer Proposals to bankruptcy, shares success stories, and provides guidance on choosing the right Licensed Insolvency Trustee to navigate the process ^1 2.

Understanding Consumer Proposal Services in Quebec

A Consumer Proposal is a legally binding debt settlement agreement between a debtor and their creditors, facilitated by a Licensed Insolvency Trustee (LIT) ⁷. The LIT helps determine how much debt the individual can reasonably afford to pay back and sets up a payment plan approved by the creditors ⁷. This legal process, governed by the Bankruptcy and Insolvency Act, allows debtors to repay a portion of their debts based on their income and assets ^{1 3 4 5 6}.

Key features of a Consumer Proposal in Quebec:

1. Deals with unsecured creditors and can eliminate almost all unsecured debts, but secured debts like mortgages and car loans are not affected ⁸.
2. Provides benefits such as reducing debts by up to 70%, keeping all assets, and legally binding all creditors to the offer if the majority agree ⁸.
3. Allows repayment over a longer or shorter period, with a lower amount each month, or repayment of only part of the debts ⁹.
4. The total of debts cannot be more than $250,000 for individuals and $500,000 for married couples, not including a mortgage loan on the main residence ⁴.
5. Interest charges are frozen upon the initiation of a Consumer Proposal ⁴.
6. The payment plan can last up to 60 months, with a filing fee of $1,500 and an additional 20% of future payments going to the LIT ⁴.

To be eligible for a Consumer Proposal, the debtor must be either bankrupt or insolvent, which means:

• Unable to pay debts as they become due
• Stopped paying debts or bills
• The value of all property is less than the value of all debts

The trustee examines the financial situation, helps draw up a list of debts, prepares a reasonable proposal for creditors, and is responsible for bringing relevant creditors, sending them a copy of the proposal, and paying them once the consumer proposal has been accepted ⁴.

Eligibility Criteria for Filing a Consumer Proposal in Quebec

To be eligible for filing a consumer proposal in Quebec, an individual must meet the following criteria:

1. Be insolvent, meaning they owe at least $1,000 to creditors and are unable to repay debts as they come due ⁹.
2. Have total debts, excluding the mortgage on their main residence, less than $250,000 ^9 14.
3. Reside or own property in Canada ^9 12.
4. Meet one of the following conditions: cannot pay debts as they become due, have stopped paying debts or bills, or the value of all property is less than the value of all debts ^9 15 16.
5. Have a stable source of income to ensure monthly payments can be made ¹⁰.

It’s important to note that businesses are not eligible for filing a consumer proposal, unless it is a sole proprietorship ¹⁰. However, if an individual is already bankrupt, they can still file a consumer proposal ¹⁰. In such cases, if the consumer proposal is accepted, the bankruptcy will be annulled, and the individual will be bound by the terms of the proposal ¹⁰.

The amount of debt repaid to creditors in a consumer proposal is based on the individual’s income and assets ^{1 3 4 5 6 17 18 19 20 21}. Additionally, two or more people can file jointly if all or substantially all debts are similar, and the total debts must be less than $500,000 (excluding mortgage on principal residence) ¹¹.

The Process of Filing a Consumer Proposal

The process of filing a Consumer Proposal in Quebec involves several steps, starting with a debt assessment conducted by a Licensed Insolvency Trustee (LIT) ⁷. The LIT will examine your financial situation, help you draw up a list of your debts, and determine a reasonable repayment plan ⁹. To file a Consumer Proposal, you must work directly with an LIT, as they are the only professionals authorized to arrange and administer this legal process ^4 8.

Once the LIT has prepared the necessary paperwork and documentation, they will file the proposal on your behalf ⁷. The LIT is also responsible for:

1. Bringing the relevant creditors together, if necessary ⁹
2. Sending creditors a copy of the proposal ⁹
3. Paying creditors once the Consumer Proposal has been accepted ⁹

For the Consumer Proposal to be legally binding, creditors who own the majority of your debt must agree to the proposed repayment plan ^{1 3 4 5 6}. If they accept the proposal, you will have to repay the agreed amount over a maximum repayment period of 5 years ^4 12. The amount of debt you repay is based on your income and assets ⁴.

It’s important to note that:

• Filing a Consumer Proposal costs approximately $1,500 ^{1 3 4 5 6}
• The LIT will retain 20% of your future payments as a fee for administering your Consumer Proposal ^{1 3 4 5 6}
• A note will be added to your credit report indicating that you have used a Consumer Proposal to settle your debts ⁹
• If you fail to make three payments, the Consumer Proposal can be cancelled ⁹

Advantages of Opting for a Consumer Proposal

A Consumer Proposal offers several advantages for individuals struggling with debt in Quebec:

1. Debt Reduction: A Consumer Proposal can reduce debts by up to 70%, allowing individuals to repay only a portion of their total debts ^{13 4 1 5 3 6}.
2. Affordable Payments: With a Consumer Proposal, individuals make one affordable monthly payment, and interest is frozen when the proposal is filed ^13 9. The payment terms do not change even if the individual’s financial situation improves ^13 15.
3. Asset Protection: Unlike bankruptcy, which requires the surrender of all non-exempt assets, a Consumer Proposal allows individuals to keep all their assets, including cars and home equity ^13 14 17.
4. Creditor Protection: Once a Consumer Proposal is filed, it stops all creditor actions, including collection calls, lawsuits, and garnishments ¹³. It is legally binding on all creditors if the majority agree to its terms ^13 15.
5. Debt Consolidation: A Consumer Proposal can be an effective way of consolidating debt in Quebec if an individual can’t afford to repay all of what they owe, has stable income, and has enough money in their budget to make monthly payments ^{4 1 5 3 6}.
6. Avoiding Bankruptcy: A Consumer Proposal is a less serious debt forgiveness program than bankruptcy and is one of the last ways to avoid it ^4 17. It has less impact on an individual’s credit rating, with the record staying on their credit report for a shorter period compared to bankruptcy ^15 17.
7. Flexibility: A Consumer Proposal allows for repayment of debts over a longer or shorter period, with total debts not exceeding $250,000 (excluding mortgage loan on primary residence) ⁹. It is a good option if an individual doesn’t qualify for a debt consolidation loan or has debts that can’t be included in a debt management program ^{4 1 5 3 6}.

Potential Downsides and Considerations

While Consumer Proposals offer many benefits, there are some potential drawbacks and considerations to keep in mind:

1. Longer repayment period: A Consumer Proposal may take longer to complete than a bankruptcy, as lower monthly payments result in a longer repayment period. However, if the individual’s financial situation improves, they can pay off the proposal early ¹⁴.
2. Credit impact: A Consumer Proposal negatively impacts credit, resulting in an R7 rating, which remains on the credit report for three years after completion ¹⁴. Filing a consumer proposal will negatively impact your credit score due to debt write-offs ¹⁶, and you will be considered a high-risk borrower, leading to higher interest rates ¹⁶.
3. Mandatory adherence: Adherence to all proposal payments and agreements is mandatory. Failure to comply, such as missing payments or falling behind, may result in termination of the proposal terms ¹⁴. If three monthly payments are missed, the proposal can be cancelled, resulting in all debts, interest, and fees being reinstated, and the proposal cannot be reactivated without permission from the court ¹⁹. When you file a consumer proposal, you’re committing to a new legally binding contract with monthly payments. Failure to fulfill this commitment may result in termination of the proposal ²¹.
4. Creditor rejection: If more than 25% of your creditors (by dollar value) ask for a meeting and more than half of the creditor’s claims vote against your proposal, it can be rejected ¹⁸. Large creditors can dictate higher payment terms if they have very large balances ¹⁸. Creditors can reject the Consumer Proposal, and if they do, the individual may have to offer them additional funds, or they will not proceed ^{1 3 4 5 6}.
5. Excluded debts: Some unsecured debts are not eligible for a consumer proposal, such as debts due to fraud, child support or alimony payments, and court fines ¹⁸. Student loans that are less than seven years old will not be included in the consumer proposal ¹⁶. Consumer proposals only cover unsecured debt. Secured debts are not included unless the individual is returning the asset back to the lender ²⁰.
6. Public record: Consumer Proposals create a permanent public record stored in a searchable online database, negatively impacting the individual’s credit score ²². It’s not private, as it’s a permanent public record included on a searchable database ^{1 3 4 5 6}.
7. Cost: The cost to file a Consumer Proposal is approximately $1,500 ⁴, and the trustee you work with will hold back 20% of your future payments as an administration fee ⁴. It’s more expensive than declaring bankruptcy ^{1 3 4 5 6}.
8. Court approval: A Consumer Proposal must be approved by the Court ^{1 3 4 5 6}.
9. Asset sale: Some assets (such as the individual’s home, vehicles, or investments) may need to be sold ^{1 3 4 5 6}.
10. Professional and employment impact: The permanent record of the individual’s insolvency can put certain professional licenses at risk and may also affect future employment opportunities ^{1 3 4 5 6}.

It’s essential to carefully consider these potential downsides and discuss them with a Licensed Insolvency Trustee to determine if a Consumer Proposal is the best option for your specific financial situation.

Comparing Consumer Proposals and Bankruptcy

When considering debt relief options in Quebec, it’s essential to understand the differences between a Consumer Proposal and bankruptcy. Both solutions are legally binding and provide protection from creditors, but they have distinct qualifications, costs, lengths, and impacts on assets and credit ratings ^24 25.

Aspect	Consumer Proposal	Bankruptcy
Qualifications	Maximum of $250,000 in unsecured debt (excluding mortgage) 24	No debt limits 17
Cost	A negotiated settlement, usually starting at 20% of your debt, divided into monthly payments 24	Monthly payments based on your average monthly income, in accordance with government regulations 24
Length	Up to 5 years, no penalty for early termination 24	9 months or 21 months based on income 24
Assets	Keeps all assets 24	Surrender non-exempt assets 24
Credit Rating	R7 rating remains on credit for 3 years after completion or 6 years after filing, whichever comes first 24	R9 rating remains on credit 6 to 7 years after completion 24

A Consumer Proposal is a formal agreement between a debtor and their creditors, administered by a Licensed Insolvency Trustee ²⁵. The debtor pays part or all of their debt at a reduced rate over a specific period of time, which must be less than $250,000, excluding the mortgage ²⁵. This legally binding agreement provides protection from debt collectors and stops wage garnishments, with interest on the debt stopping the day the proposal is filed ²⁵.

On the other hand, bankruptcy is a structured legal process that relieves the debtor of their debts from creditors ²⁵. A Licensed Insolvency Trustee is assigned to the bankruptcy claim to take control over the debtor’s assets, investigate their affairs, and monitor their progress for bankruptcy duties ²⁵. If the debtor completes these duties, which include attending two credit counselling sessions and filing monthly reports on income and expenses, they will typically be discharged from their debt in 9 or 21 months ²⁵. Bankruptcy may involve varying monthly payments depending on the debtor’s income ²⁵.

Choosing the Right Trustee for Your Consumer Proposal

When selecting a trustee for a Consumer Proposal in Quebec, it is essential to consider the following factors:

1. Consultation with a non-profit credit counselling organization: It is crucial to consult a member of Credit Counselling Canada, a national association of non-profit credit counselling organizations who don’t work on commission, before considering a Consumer Proposal ⁴. These organizations can provide unbiased advice and help individuals understand their options.
2. Cost and payment terms: The cost of a Consumer Proposal depends on the individual’s income and assets, with settlements of 30 cents on the dollar not uncommon ⁸. Proposal payments can be spread out over a maximum of 5 years and are interest-free ⁸. It is important to discuss the cost and payment terms with potential trustees to ensure affordability and feasibility.
3. Experience and expertise: When choosing a trustee, look for professionals with extensive experience in handling Consumer Proposals in Quebec. They should have a thorough understanding of the process, legal requirements, and potential challenges. A trustee with a proven track record of successful Consumer Proposals can provide valuable guidance and support throughout the process.

By considering these factors and working with a reputable and experienced trustee, individuals can increase their chances of successfully navigating the Consumer Proposal process and achieving financial stability.

Conclusion

Consumer Proposal Services offer a viable solution for individuals struggling with debt in Quebec, providing an alternative to bankruptcy. By working with a Licensed Insolvency Trustee, debtors can negotiate a legally binding agreement with their creditors, reducing their debts and establishing an affordable repayment plan. Although there are potential drawbacks to consider, such as the impact on credit scores and the possibility of creditor rejection, the advantages of a Consumer Proposal often outweigh these concerns.

Ultimately, the success of a Consumer Proposal depends on the individual’s commitment to the process and their ability to adhere to the repayment plan. By carefully evaluating their financial situation, consulting with a non-profit credit counselling organization, and choosing an experienced trustee, individuals can significantly improve their chances of achieving financial stability through a Consumer Proposal. For those facing overwhelming debt in Quebec, exploring this option may provide the relief and support needed to regain control of their financial future.

FAQs

1. What are the disadvantages of filing a consumer proposal? The main disadvantages of a consumer proposal include a longer repayment period compared to bankruptcy, which means you’ll spend more time paying back your debts. Even though you can pay off the proposal early if your financial situation improves, it will still have a negative impact on your credit rating.

2. Can you explain what a consumer proposal entails in Quebec? In Quebec, a consumer proposal is a formal offer made to your creditors to settle your debts under new terms. This arrangement allows you to extend or reduce the repayment period based on your financial situation, lower your monthly payment amount, and potentially repay only a portion of the total debts owed.

3. Is it necessary to include all debts in a consumer proposal? Yes, when you file a consumer proposal, you are required to include all of your unsecured debts. It is not permissible to exclude specific creditors, as the consumer proposal is a legal process intended to treat all creditors equitably.

4. Must all credit cards be included when filing a consumer proposal? When you file a consumer proposal, you are generally obliged to surrender all of your credit cards to your Licensed Insolvency Trustee. It is likely that you will not be able to obtain a new credit card until the terms of your proposal have been fully met.

References

[1] – https://nomoredebts.org/debt-help/consumer-proposal-canada/quebec/montreal [2] – https://canadaffc.ca/consumer-proposals/ [3] – https://bankruptcycanada.com/canadian-consumer-proposal/quebec/ [4] – https://nomoredebts.org/debt-help/consumer-proposal-canada/quebec [5] – https://mnpdebt.ca/en/consumer-proposal [6] – https://jeanfortin.com/en/explore-solutions/consumer-proposal/ [7] – https://www.consolidatedcreditcanada.ca/consumer-proposal/ [8] – https://www.hoyes.com/consumer-proposals/ [9] – https://educaloi.qc.ca/en/capsules/consumer-proposals/ [10] – https://bankruptcycanada.com/consumer-proposal-eligibility/ [11] – https://www.bankruptcy-canada.ca/consumer-proposal-eligibility [12] – https://mnpdebt.ca/en/resources/mnp-debt-blog/are-you-eligible-for-a-consumer-proposal [13] – https://www.hoyes.com/consumer-proposals/consumer-proposal-benefits/ [14] – https://wecanhelp.ca/proposals-advantages-and-disadvantages/ [15] – https://www.bankruptcy-canada.ca/advantages-of-consumer-proposals [16] – https://www.remolinoassociates.com/consumer-proposals/benefits-disadvantages-alternatives/ [17] – https://bankruptcy.mnpdebt.ca/consumer-proposal/qc [18] – https://mnpdebt.ca/en/resources/mnp-debt-blog/what-are-the-pros-and-cons-of-a-consumer-proposal [19] – https://www.hoyes.com/blog/disadvantages-of-consumer-proposals-are-they-bad/ [20] – https://yanchdey.com/disadvantages-of-consumer-proposal/ [21] – https://www.spergel.ca/learning-centre/consumer-proposal/consumer-proposal-disadvantages/ [22] – https://www.rbcroyalbank.com/en-ca/my-money-matters/debt-and-stress-relief/bankruptcy/consumer-proposals/an-alternative-to-bankruptcy-understanding-the-consumer-proposal-process-in-canada/ [23] – https://www.hoyes.com/consumer-proposals/consumer-proposal-vs-bankruptcy/ [24] – https://debtsolutions.bdo.ca/solutions/bankruptcy/consumer-proposal-vs-bankruptcy/ [25] – https://bankruptcy.mnpdebt.ca/faqs/difference-between-consumer-proposal-and-bankruptcy