Introduction
A consumer proposal serves as a legally binding arrangement between you and your creditors. It provides a structured way to repay a percentage of what you owe, leading to total debt forgiveness. For Canadians burdened with significant debt, it can be an incredibly affordable method to wipe out unsecured debt and secure a fresh financial start.
While filing a consumer proposal is not free, its fees are incorporated into your monthly consumer proposal payments, with no extra charges. Let’s explore the costs of filing and how payments are calculated to fit your budget.
Who Can File a Consumer Proposal?
The Bankruptcy and Insolvency Act in Canada delineates the criteria for filing a consumer proposal. You must:
- Be insolvent, meaning you are unable to pay your debts as they become due, or your assets are worth less than your unsecured debt obligations.
- Reside, conduct business, or own property in Canada.
- Owe more than $1,000 and less than $250,000 in unsecured debt, excluding the mortgage debt on your primary residence.
Debts that can be discharged include credit card debt, payday loans, lines of credit, income tax debts, personal loans, and student loans if you have been out of school for over seven years. You can continue to pay secured debts like a car loan or mortgage if you wish to retain your car or house. Alternatively, you can surrender your vehicle or walk away from your mortgage, including any shortfall in your consumer proposal.
While you may be eligible to file a consumer proposal, a Licensed Insolvency Trustee will conduct a thorough review of your debts and financial situation before recommending any debt solution.
Do You Have to Pay to Talk to a Licensed Insolvency Trustee?
A consumer proposal can only be filed through a Licensed Insolvency Trustee. Licensed Insolvency Trustees (LIT) offer free consultations to review your debt relief options, with no obligation. There is no fee to discuss your financial situation with a trustee.
Licensed Insolvency Trustees are federally licensed debt professionals and are regulated by the Office of the Superintendent of Bankruptcy (OSB). Trustees are legally obliged to explain all debt relief options to you. Not everyone struggling with debt ends up going bankrupt. While some will file a consumer proposal, many will be given suggestions and solutions that allow them to manage their debt independently.
You are not obligated to work with the first trustee you speak to. You should choose one you feel comfortable with. As consultations are always free, you can visit multiple professionals without concern.
The OSB allows Licensed Insolvency Trustees to conduct a debt assessment online therefore making it easy to have an initial discussion over the phone or via video to understand your debt management options.
Always verify a trustee’s credentials and ensure they are licensed by the federal government. Beware of unlicensed debt consultants who act as middlemen and refer you to a Licensed Insolvency Trustee, only after charging you hefty upfront fees. You do not need a referral or to pay anyone to recommend a trustee to you. You can speak to an LIT directly yourself.
What is the Cost to File a Consumer Proposal?
Licensed Insolvency Trustees are paid to administer consumer proposals. Trustee fees for a consumer proposal are set by legislation and are the same across all LITs in Canada. You do not make any payments until your consumer proposal is officially filed with the federal government. Filing your consumer proposal is what provides protection from creditor actions. Beware of anyone asking you to make payments under a contract that is not your official consumer proposal filing documents.
Your consumer proposal documents will include the agreed-upon settlement and monthly payment you propose to your creditors. This offer amount is the only cost of filing a consumer proposal. There are no additional payments to the trustee.
Trustee fees are included as part of the single monthly payment you make in your proposal to eliminate your debt. Your unsecured creditors in the proposal receive any balance from the monthly proposal payment after trustee fees have been paid. Your creditors are effectively covering the cost of a consumer proposal as part of the formal proposal agreement and payment terms.
The costs of filing a consumer proposal include:
- A filing fee of approximately $100 paid to the OSB,
- Counselling fees of $85 for each of two mandatory credit counselling sessions,
- Proposal fees to the consumer proposal administrator (trustee) of $1,500 plus 20% of creditor distributions,
- Levy of 5% of creditor distributions payable to the OSB
There are no hidden, up-front, or additional costs in a consumer proposal or any interest charges. Your trustee will explain all the costs to you before your filing.
How are Consumer Proposal Payments Calculated?
The objective of a consumer proposal is to help you eliminate your unsecured debt with the most affordable repayment plan that fits your budget and satisfies your unsecured creditors. Your trustee will consider three basic factors when determining your consumer proposal payment calculation:
- Who you owe money to and the amount,
- What, if any, assets you have or what you would have to pay in a bankruptcy,
- Your budget and how much you can realistically afford to repay.
As part of the consumer proposal process, the trustee’s job is to balance affordability for your budget, offer an amount that allows your creditors to recover more than they would if you were to file a personal bankruptcy, and to offer enough that your consumer proposal will be accepted by your creditors.
For the lowest monthly payment plan, you can extend your consumer proposal up to a maximum of 5 years or 60 months. But if you can afford it, you also have the option to shorten your proposal term or you can even offer a lump sum payment.
Summary
The key takeaway is that any fees you pay in your consumer proposal filing are already included in the same monthly payment you make to eliminate your unsecured debt, and nothing extra. Your Licensed Insolvency Trustee will work closely with you to help you decide on the best debt relief option for your financial situation. If that option is a consumer proposal, the trustee will help you craft a realistic proposal plan for your budget.
If you are struggling to repay your debts, contact a Licensed Insolvency Trustee today for a free consultation and get on a path to becoming debt free.
