The Consumer Proposal Process
How Does a Consumer Proposal Work? – An In-Depth Look at the Consumer Proposal Process
A consumer proposal is a legally binding agreement with your unsecured creditors to repay a portion of what you owe. People that are unable to repay all of their debt but can afford to repay a portion of the debt they owe often can avoid bankruptcy with a consumer proposal.
Filing a consumer proposal allows a person to get out of debt and start fresh while also avoiding bankruptcy and allowing you to keep assets that would be surrendered in a bankruptcy.
In order to make a consumer proposal to your creditors you must work with a Licensed Insolvency Trustee, who are the only financial professionals who are licensed to work as a consumer proposal administrator. The consumer proposal process starts with a free initial consultation so the trustee can help you determine if a proposal is a valid option for you.
If the trustee determines a consumer proposal would work well for you they will work together with you to make a sensible payment plan that will be accepted by your unsecured creditors and affordable for you to manage the payments over the life of the proposal, which can last for up to 60 months (5 years).
If your consumer proposal is accepted (over 98% of proposals are accepted) it becomes a legally binding settlement to eliminate your unsecured debts.
The consumer proposal payments and the length of the proposal can be adjusted to your personal situation.
Consumer Proposal Process in Canada
- If you and the Trustee you meet with determines that a consumer proposal is the best insolvency option for you, the Trustee will help you develop a proposal that will be presented to your unsecured creditors.
- The proposal plan must be acceptable to both you and your unsecured creditors. Once the proposal plan has been drafted by the Trustee and given the final approval by you the Trustee will file the proposal with the Office of the Superintendent of Bankruptcy (OSB).
Once the consumer proposal has been filed with the OSB, you will receive an automatic stay, which is a legal order that stops your unsecured creditors from contacting you or attempting to collect on your debt. Your wages will no longer be garnished and collection calls will stop.
Additionally, interest charges on your unsecured debt will stop and you will stop making payments to your unsecured creditors once the proposal paperwork has been submitted to the OSB. It is important to note that your consumer proposal hasn’t been accepted yet.
- After the Trustee has submitted the proposal to the OSB, they will also submit a copy of the consumer proposal and a report detailing your financial situation to your unsecured creditors.
Once your creditors have received the proposal they have 45 days to vote on whether to accept or reject your proposal. Your creditors can vote to accept your proposal, accept your proposal if it is modified to include more payments, or reject your proposal.
If the creditors do not reply with their vote within 45 days (which often occurs) the proposal will be deemed to be accepted. Almost all proposals are accepted as the main rule when drafting a consumer proposal is that your unsecured creditors must receive more money than if you were to go bankrupt.
In very rare cases your unsecured creditors may request a meeting of creditors to discuss your financial situation and the causes of your money problems. Your Trustee will hold this meeting at their office and the voting can occur during this meeting.
- After your consumer proposal has been accepted by your creditors it will take another 15 days to get the court’s approval. Once your proposal has been accepted by the court it will become a legally binding agreement between you and your creditors.
- If your Consumer Proposal is accepted (over 98% of proposals filed with a Bankruptcy Canada trustee are accepted):
You will make a single payment as required by your proposal plan each month to your Trustee, who will distribute the funds to your unsecured creditors;You will follow all of the conditions laid out in your proposal;
You must attend two financial counselling sessions with your consumer proposal administrator (the Licensed Insolvency Trustee);
Your credit report will reflect your consumer proposal for a period of 3 years after you have completed your consumer proposal;
You will keep all of your assets, including the ones that would be surrendered in bankruptcy.
- If your consumer proposal is not accepted you may:Resubmit your proposal after making reasonable changes to make the proposal
more attractive to your creditors;Determine if there are other debt relief solutions available for you;
Is Repaying a Portion of My Debt Really a Possibility?
Yes, it is true that you can repay a portion of the debt you owe, although a consumer proposal is not for everyone. In order to qualify for a consumer proposal, you must be insolvent, which means you are suffering serious financial difficulties already.
For debtors that are insolvent, they must have enough income to make a viable consumer proposal to their creditors.
For example, if you owe $50,000 on your credit cards you must be able to repay a fair portion of this (at least 25 to 30%, but possibly more) in order for your creditors to accept your proposal.
If you cannot afford to make a fair consumer proposal you might have no choice but to declare bankruptcy.