Consumer Proposal FAQ – Frequently Asked Proposal Questions
Consumer Proposals FAQ: A consumer proposal is a payment plan that you negotiate with your creditors and file through an LIT so you can avoid bankruptcy and keep assets that might other wise be lost in a bankruptcy.
A consumer proposal is a payment plan that you can negotiate with your creditors so you can avoid bankruptcy. Our Consumer Proposal FAQ page is intended to give a person in debt a brief understanding of how a proposal works.
We have gathered some of the most common questions about consumer proposals that our consumer proposal experts receive.
Our questions and answers are categorized:
Consumer Proposal FAQ – How A Consumer Proposal Works
What are the Advantages to a Consumer Proposal?
As the most popular alternative to bankruptcy, there are many key benefits to making a consumer proposal. Some of these benefits include:
- You can keep your assets;
- You will make one low payment each month;
- There is the option to make a 1 time lump sum payment proposal;
- You are entering into a government regulated program;
- Your creditors will not be able to contact you or harass you;
- There is the option to pay off your proposal early if you decide;
- You can miss two payments (which must be made up later) without any consequences;
- You can avoid bankruptcy.
What Is A Consumer Proposal?
A proposal is a legal settlement between you and your creditors to settle your debts. You will negotiate, through a proposal administrator, a proposal plan to repay a percentage of the debt you.
Am I Eligible for a Consumer Proposal?
A consumer proposal is governed by the Bankruptcy & Insolvency Act so there are certain rules and regulations that must be followed.
Any person who owes less than $250,000 (not including the mortgage on their personal residence) or a couple who owes less than $500,000 qualify to make a consumer proposal to their creditors.
The person must also have a high enough income to make a viable proposal to their creditors.
Can I Stop Collection Calls?
Yes. Once your consumer proposal has been filed you will gain protection from your creditors through the “stay of proceedings.” This will stop collection calls from your creditors as well as their collection agencies.
Will a Consumer Proposal Stop My Wage Garnishment?
Yes, your consumer proposal will provide a stay of proceedings, which stops all creditor actions such as collection calls and wage garnishments.
However, if your wages are being garnished for family support payments (alimony or child support), this will not be stopped.
What Does a Consumer Proposal Cost?
The cost of a consumer proposal varies widely as it depends on your debts and your creditors. When making a consumer proposal you must offer your creditors more than they would receive if you were to go bankrupt. Generally, you will repay 30 to 40% of your debt during a consumer proposal over a period of time lasting up to 60 months (5 years).
Your proposal administrator (only a Licensed Insolvency Trustee can act as a proposal administrator) will examine your assets, income and budget to determine what you would pay in a bankruptcy and what you can afford to pay to your creditors under a proposal. The trustee will use this as a guide to determine your consumer proposal amount. The cost to file the proposal is covered by the payments under the consumer proposal; there is no additional payments to be made.
How Long Does a Consumer Proposal Last?
A consumer proposal can last for any period of time not exceeding 60 months / 5 years. The reason a proposal cannot last longer than 5 years is that evidence showed most proposals longer than 5 years will fail, mainly because people don’t see a “light at the end of the tunnel”. You can make a one time lump sum consumer proposal that can be over in a matter of weeks. Will My Consumer Proposal be Approved?
Your Trustee / Proposal Administrator will work hard to craft a proposal to your creditors that has the highest chance of being accepted.
Most administrators will have an understanding of what different creditors want to receive in order to accept a proposal.
However, your proposal still might be rejected by your creditors. Although this is very rare, it could happen.
If your proposal is not accepted then you can negotiate with your creditors until an agreement can be reached.
Your proposal will be accepted if a majority of your creditors (each dollar of proven claims counts as a vote) vote yes on the proposal, or do not vote at all (which is considered a yes vote).
The creditors have 45 days from your proposal being electronically filed to vote or request a creditor’s meeting.
A meeting is required if 25% of your unsecured creditors request a meeting.
If your proposal is accepted all creditors, including those who voted against your proposal, will be bound by the terms of the proposal.
Are Proposals Often Voted Against?
The vast majority of consumer proposals are accepted by creditors, as a primary rule when crafting a proposal is that your creditors must receive more than if you were to file for bankruptcy.
Can I Leave a Creditor Out of My Proposal?
No, all of your eligible unsecured debt must be included in the consumer proposal. Some unsecured debts, such as student loans less than 7 years old, court fines, support and alimony payments cannot be discharged in a consumer proposal.
Secured debt cannot be included in a proposal.
Can I Include Tax Debts in a Consumer Proposal?
Yes, the CRA is an unsecured creditor and you can include your tax debt in the proposal.
What Do I Have to do During the Proposal?
There are certain duties that a person in a consumer proposal must complete in order to successfully complete their proposal.
During the proposal you must:
- Make your payments on time (you can defer two payments without consequence) and;
- Attend the two required financial counselling sessions.
Can I Pay Off My Proposal Early?
Yes, there is no penalty paying off your proposal early. You have to pay the total amount agreed to, but if your financial situation improves you can make the total payment early.
This will allow you to begin rebuilding your credit sooner.
What Happens If I Miss My Proposal Payments?
You can miss up to two payments without consequences. These payments can be added onto the end of your proposal.
However, if you fall three payments in arrears, your proposal will be automatically annulled.
This means your proposal is cancelled, and your debts will be reinstated in full and your creditors can seek collection from you. All payments you made during the proposal will be lost.
Consumer Proposal FAQ – Consumer Proposals & Student Loans
Does a Consumer Proposal Eliminate Student Loan Debt?
Yes, your student loan debt can be included in a consumer proposal if you have been out of school for at least 7 years. You can have this reduced to 5 years if you can prove financial hardship.
The 7 year (or 5 year) period starts from your “end of study date.”
This date is the last day the government has records of you being enrolled as a student in a post-secondary education program.
The time period will restart if you return to school.
You can contact Canada Student Loans to learn the date of the last day the government has you registered as a student.
Consumer Proposal FAQ – Life After A Consumer Proposal
How Long Will a Record of the Consumer Proposal Stay on My Credit Report?
A report of your consumer proposal will remain on your credit report for 3 years after you have satisfied all your consumer proposal payments.
If you have filed a proposal the notice on your credit report will include your date of filing.
Once you have received your certificate of completion for your proposal, the OSB will send a note of your proposal completion to the credit bureaus.
It can take up to two months for the credit reports to update.
Can I Rebuild My Credit After a Consumer Proposal?
Yes you can rebuild your credit score after you have filed a proposal.
By following the steps your proposal administrator will give you it is possible to rebuild your credit fairly quickly.
Even with a report of your proposal on your credit report, you can still receive new credit at reasonable interest rates.