Your Guide to Understanding Consumer Proposals in Canada

Filing a Consumer Proposal with your creditors allows you to erase your debts and to keep your assets by making payments that you can afford, without filing bankruptcy.

You could end up paying 50% of the debt or perhaps only 30%.

The advantages of a Consumer Proposal

• One of the main reasons for filing a proposal is that it allows a person to keep assets that might be lost in a bankruptcy.
• A consumer debt proposal can be a very powerful alternative to filing bankruptcy.
• It allows you to keep assets that might be lost in a bankruptcy.
• You receive an immediate legal order protecting you from creditor collection action through this potent legal process.
• You will also stop making payments on your unsecured debt through a consumer proposal / bankruptcy.
• The trustee will handle all communications with your creditors on your behalf.
• A proposal is a legally binding agreement to repay a portion of your debt between you and your unsecured creditors.

This is becoming a very popular debt relief option for Canadians dealing with massive debt.

1. 1. You will be able to keep assets that might be lost in a bankruptcy;
   2. You will receive protection from all of your creditors, including your bank, credit card companies, and the Canada Revenue Agency ("CRA");
   3. Your trustee will deal with your creditors for you;
   4. You will receive the "Stay of Proceedings" that is the legal order that prevents your creditors from making any collection attempts.Collection calls will stop.

      Wage garnishment orders contemplated or in place will cease;

1. You will be able to consolidate all of your debts into a single, easy to make payment, so you won't have to keep track of different payment schedules on all of your different debts;
2. The administrator will be paid out of the single monthly payment that you make into the proposal;
3. You are able to make additional payments or add a large payment in the middle of the proposal if your financial situation improves so you can have the proposal paid off earlier;
4. If you are a director of an incorporated company you can continue to act as the director while in a proposal, which is not possible in bankruptcy;
5. You will no longer have to pay interest charges that could be 30% or higher;
6. A consumer debt proposal allows you to avoid bankruptcy!

Some of the rules in filing a consumer proposal are:

1. You must use the services of a Licensed Insolvency Trustee;
2. The creditors must end up better off than if filing bankruptcy; “Better off” can mean that payments are made over time or a third party agrees to pay a sum to the creditors only if the proposal is accepted;
3. The debt must be consumer debt, so a business cannot file.However, a person who has a sole proprietorship business can file one;
4. A person cannot owe more than $250,000, excluding home mortgages.If more than $250,000 is owed a Division I Proposal is available.
5. The proposal cannot be for more than 5 years;
6. As soon as a proposal is filed all actions against the debtor, by law, must cease.This includes collection calls, garnishment and any legal action to collect the debt.

   Interest also stops accruing;

7. Consumer proposals are considered accepted if, within 45 days of the filing, a creditor has not objected.
   If any creditor objects a creditors’ meeting is required; 
8. Creditors vote at the meeting with a simple majority of the dollars voted deciding on acceptance or refusal;
9. If the debt proposal is accepted all the creditors, including the ones who voted against the proposal
   

   Photo Credit - Canadian provinces ranked by average consumer debt

   and the ones who did not vote, are bound by the terms of the proposal;

10. If the proposal is not accepted, the debtor cannot make another proposal;
11. The debtor is not automatically bankrupt if the consumer debt proposal is not accepted; 
12. The debtor is required to take two counselling sessions.

You are given a set period of time in which to pay off your debt in an interest free and government approved debt management plan.

The Process – How Does a Proposal Work?

The consumer proposal process begins by meeting with a licensed insolvency trustee, who is known as a consumer proposal administrator when you enter into a proposal to creditors to deal with your debt.

If you are unable to repay all of the unsecured debt that you owe but have a steady job and income you could find that a debt proposal is a viable alternative to bankruptcy.

A proposal is a legal debt relief agreement in which you make a proposal to your creditors to repay a portion of the debt owed that you can afford.

Consumer Debt Proposal Canada

Repaying a portion of your debts may sound too good to be true but a consumer proposal is a win-win situation for you and your creditors.

Most debtors avoid bankruptcy and creditors get paid more through a proposal.

Only people in financial trouble can file a proposal with their creditors although surplus income is not a consideration as it would be in bankruptcy.

A proposal is an alternative to filing bankruptcy and is not for everyone.

Many Canadians have never heard of a proposal but it is becoming a more popular alternative to filing bankruptcy in Canada because of the many benefits making a proposal to your creditors offers over bankruptcy.

Your credit score is not impacted as seriously, and a proposal usually is gone from your credit report before a bankruptcy filing clears off it.

Making a proposal to your creditors allows to begin rebuilding your credit rating faster than a bankruptcy filing would.

Where Do I Get a Proposal Made?

In order to present the proposal to your creditors you need to work with a government licensed administrator.

Although you need to use a licensed insolvency trustee to file a consumer proposal they are not called a debt proposal trustee.

If you are looking for an alternative to filing bankruptcy then you should meet with our local proposal administrator to work out a debt repayment plan that works for you and your creditors.

The trustee will then present your proposal to your creditors and work with them to get the proposal accepted.

How Much Does a Debt Proposal Cost?

The cost of a consumer proposal will depend on many different factors.

Every single proposal will have a different cost as your proposal will be based on the amount of debt you owe, your creditors, your assets and the imagination of your Trustee.

Your trustee does not charge you for preparing your agreement to offer your creditors and there are no additional or hidden fees.

If you and your creditors agree to a debt proposal agreement to pay $500 a month for 36 months that is the only payment you will make over the life of your debt proposal.

Why Would My Creditors Want Me to File a Proposal?

Creditors almost always support a consumer proposal because they do not want you to file bankruptcy as they would receive less money in a bankruptcy.