Consumer Proposals in Ontario
What is a consumer proposal, and does it make sense for you?
When you’re in debt, you seek out all the different possibilities to get out of your situation. You may try to create a tighter budget, saving money, and paying off your debts. However, this might not work for you. As such, you explore other methods – like debt consolidation, debt settlement, and debt restructuring. Again, these methods can work for some, but they might not work for everyone.
This brings us to the idea of a consumer proposal. How can this help you get out of debt, and will it work for everyone? Of course, all situations are different, but consumer proposals in Ontario are a fantastic solution for many individuals.
What is a Consumer Proposal?
According to the Government of Canada, a consumer proposal is a formal, legally binding process administered by a Licensed Insolvency Trustee. The purpose of this process is to come to an arrangement with your creditors. You and your trustee will devise a proposal to send to them. This proposal is basically an offer to pay them a certain amount of money. It won’t be the total amount, as the concept of a consumer proposal is for people who can’t repay all their debts. This is a chance for you to pay what you can, provided the creditors will accept it.
What does the Consumer Proposal process look like?
The process will last a minimum of 45 days, but it can last longer than that. It begins by finding a Licensed Insolvency Trustee to help file your proposal. We are able to do this for you, so please don’t hesitate to contact us if you’d like to begin the process.
After this, you will work with your LIT to come up with a proposal. Effectively, the amount of money you offer will be based on what you can afford. This takes into account your job and current income. So, you only pay what you can actually afford to pay each month.
When you are happy with the proposal, your LIT will file it with the Office of the Superintendent of Bankruptcy. From this point on, you stop making any payments towards your unsecured debts. You can consider the frozen until this proposal has been dealt with. Plus, if your creditors are carrying out wage garnishment, this will stop until the proposal has been approved or denied. Obviously, the consumer proposal also gets sent to all your creditors.
The waiting phase
At this stage, you trigger a 45-day countdown. Your creditors have 45 days to decide if they accept your proposal or not. During this period, they can call a meeting of creditors where you all get together to discuss the offer. Here, it’s a chance for your creditors to talk about the proposal and come up with counterarguments or offers. It’s worth noting that this meeting can only be called by one or more of your creditors that are owed at least 25% of your debts. For example, if you’re $100,000 in debt, and you owe $25,000 to one creditor, they have the power to call the meeting. Or, three creditors that are owed $10,000 each have enough between them to call the meeting together.
Meeting of creditors
During the meeting, a decision will be made regarding your proposal. Voting will take place, and you need a 51% majority for the consumer proposal to pass. However, the majority is calculated based on how much money you owe. Going back to the $100,000 example, you’d need creditors that are owed at least 51% of that amount to vote in favor.
As such, you can be in a unique position where more people vote against the proposal but it still passes because the people who voted in favor are owed the majority of your money.
Following through with your agreement
When the consumer proposal is agreed upon, you will have to follow through with your side of the bargain. This means making regular payments at a set period for a specific duration. Please note, a consumer proposal cannot last for longer than 5 years! When your obligations have been met, you are free from the proposal and receive certification that states this. All the debts that were part of your proposal are now wiped out.
The advantages of Consumer Proposals in Ontario
Filing a consumer proposal can come with lots of advantages for anyone in debt. Before you decide if this is right for you, it pays to understand the pros and cons. Below, you’ll see the main advantages:
- Reduce your debts: The main aim of a consumer proposal is to reduce the amount of money you owe. Instead of paying off $200,000 of debt, you can only pay a fraction of this. It makes your debts easier to manage.
- Reduce stress: The flipside of making debt more manageable is that it reduces your stress levels. You know there’s an end in sight as you have a fixed sum to pay. It allows you to finally dream of a day where you have no debt to worry about.
- A great alternative to bankruptcy: A consumer proposal can be a brilliant alternative to bankruptcy, which is often seen as the last resort. Going bankrupt means you may have to part with lots of your possessions. It will also put a black mark on your credit report that stays there for at least 6 years. Consumer proposals also impact your credit report, but for far less time. Therefore this is a brilliant option to avoid bankruptcy while also paying your debts.
- Useful if other methods fail: Similarly, consumer proposals in Ontario are helpful if other debt-relief options have failed. If you have been denied a debt consolidation loan – or your creditors won’t agree to a settlement – this can be an excellent way of finding a debt solution.
- Stops debt collections: As mentioned earlier, when your proposal is filed, all debt collections stop. This gives you some much needed financial relief and can prevent you from falling even further into debt.
What are the disadvantages of Consumer Proposals in Ontario?
Here are the biggest disadvantages of going down the consumer proposal route:
- Quite expensive: It will cost around $1,500 to file a consumer proposal, which is more expensive than filing bankruptcy.
- No guarantee it gets approved: Your consumer proposal has to be voted on by your creditors and then approved by the court. So, there’s a chance you can pay the admin fee but see no results.
- It doesn’t include all debts: Much like bankruptcy, some debts aren’t included in a consumer proposal. This includes secured debts and student loans that are younger than 7 years.
- It’s recorded publicly: This is perhaps a minor issue, but consumer proposals are not private ventures. It will be put down as a public record that anyone can find if they need to do background research on you. In comparison, ideas like debt settlements or debt consolidation aren’t recorded publicly.
- Impacts your credit score: As touched upon previously, a consumer proposal will impact your credit score. It gives you one of the lowest ratings and will stay on there for 3 years following completion of the terms.
Key things to be wary of when filing a Consumer Proposal
If you’ve read the pros and cons and feel like this is the right idea for you, then you must avoid a few common mistakes.
Firstly, you must only pursue this through an LIT. Do not accept offers from anyone else, even if they claim to be a debt-relief company. Most times, you will be charged an extortionate fee as the company pays an LIT to take care of the proceedings. Avoid being ripped off – always go straight to an LIT.
Secondly, make sure you’ve explored the other debt-relief options beforehand. You may find that a debt consolidation loan works a lot better for you and is less expensive.
Finally, be sure you focus on rebuilding your credit score following the consumer proposal. A credit score is so important for all aspects of your financial life. If you want to get back on track after paying your debts, you have to spend time building your credit.
Is a Consumer Proposal right for me?
Will a consumer proposal work for you? It all depends on the individual and your financial situation. The best way to understand if it is right is by exploring al the various options and seeing which one fits your needs the best. If a consumer proposal is the only solution that makes sense, go head!
Call us for debt relief solutions in Ontario!
Do you need help with consumer proposals and all other debt-relief solutions? We’re a Licensed Insolvency Trustee that can help you with everything. We’ll find the best way to get rid of your debt by assessing your financial situation. Give us a call or fill in our online evaluation form, and we will book you in for a consultation.