How Do Consumer Proposals Work?
A Guide to Consumer Proposals
Amid a soaring debt crisis, more people are using insolvency debt solutions than ever before.
If you’re in debt and you’re struggling to manage your finances, there’s a good chance you’re looking for a viable solution to your problems too.
Fortunately, there are a wide array of options available.
Consumer proposals are routinely used by individuals who want to escape their debt problems and reset their finances.
With the potential to drastically slash the amount you owe; a consumer proposal could be the most effective way to ensure financial freedom.
Despite their increasing popularity, a significant number of people are unfamiliar with insolvency procedures.
In fact, one of the most common questions they have is, ‘how do consumer proposals work?’
If you want to learn more about making a consumer proposal and what it could mean for your finances, read on to access all the information you need…
What is a Consumer Proposal?
A consumer proposal is a legal process which facilitates a formal debt settlement.
Introduced by the federal government, the process is governed by the Bankruptcy and Insolvency Act.
Often seen as an alternative bankruptcy, a consumer proposal avoids some of the harsher consequences associated with filing bankruptcy, whilst still providing you with a way to reduce your debts.
Under a consumer proposal, you are essentially offering to pay a reduced amount to settle your debts.
In some cases, you can reduce the total amount you owe by up to 75%.
As well as reducing the overall amount of debt you’re in, a consumer proposal can also be used to negotiate the monthly repayments you’re making.
By taking your income, essential expenditure and family obligations into account, a consumer proposal seeks to find a fair and appropriate amount that you can afford to pay your creditors each month.
However, the maximum length of time a consumer proposal can run for is 5 years.
This means that you won’t be stuck paying the same debts for decades to come.
Instead, a consumer proposal provides a clear and finite plan for reducing your debts and paying them off completely.
How Do You Make a Consumer Proposal?
The first stage in making a consumer proposal is to meet with a licensed insolvency trustee (LIT).
Under the Bankruptcy and Insolvency Act, a consumer proposal must always be managed by a LIT, rather than made by individuals directly.
This helps to ensure that all the relevant legal procedures are followed and that a fair stance is taken towards both the debtor (you) and their creditors (the companies you owe money to).
1. Meeting with a Licensed Insolvency Trustee
You’re free to choose your own licensed insolvency trustee, so you may already have an idea of who can provide the help you need.
If you’re unsure where to turn to for help, however, be sure to look for a firm that has extensive experience in the industry.
While licensed insolvency trustees are regulated professionals, working with someone who has already helped thousands of people in your situation will give you peace of mind that your consumer proposal will be dealt with appropriately and efficiently.
Your first meeting with a licensed insolvency trustee is designed to enable you to find out more about what a consumer proposal is and how it would apply to your situation.
It can be useful to take paperwork or documentation relating your debts and finances, so that your LIT can get a clear idea of what your liabilities are.
Once you’ve discussed your situation in detail, you’ll be able to decide whether or not you want to move forward with making a consumer proposal.
You’re under no obligation to continue with the process, so if you want to think about your decision for days or weeks, it’s perfectly fine to do so.
2. Making a Repayment Plan
If you choose to go ahead with a consumer proposal, your licensed insolvency trustee will begin creating a bespoke repayment plan on your behalf.
To ensure the plan is realistic and workable, you’ll need to provide them with information pertaining to your income, expenditure and financial obligations.
You will also need to let your LIT know if you are expecting to receive any income or windfalls in the future, as well as whether you’re owed any money.
You’ll play an active role in creating a repayment plan, so be prepared to work with your licensed insolvency trustee as much as possible.
Many people find this part of the process to be extremely helpful, so it’s a great way to start learning more about successful financial management.
3. Filing your Consumer Proposal
Once your repayment plan is complete, your licensed insolvency trustee will prepare it so that it can be filed.
This requires in-depth knowledge of the law and the regulations which govern the procedure.
While you may need to have some input in this stage of the process, your LIT will do the bulk of the work.
You won’t be required to deal with your creditors while you are in the process of making a consumer proposal and your LIT will take on the burden of filing your consumer proposal, so you won’t have to worry about the formal aspect of your debt settlement.
When a consumer proposal is filed, various documents must be included, such as:
- Statement of Affairs;
- Statement of Income and Expenses;
- Assessment Certificate;
- Consumer Proposal;
- Relevant administrative documents.
You will be asked to review and sign these documents prior to them being filed, so be sure to check them carefully.
If you’re unsure of anything, now is the perfect time to ask your licensed insolvency trustee to confirm the details or explain the terms to you.
Providing you’re happy with the proposal, your LIT will file the documents with the Office of the Superintendent of Bankruptcy (OSB).
At this point, a stay of proceedings applies to your debts, which means creditors cannot begin legal proceedings against you.
4. Acceptance of Your Consumer Proposal
After filing your proposal with the OSB, your licensed insolvency trustee must notify all of the creditors listed in the proposal within a period of five days.
This is done by sending a Notice to Creditors. Once received, your creditors will have 45 days to review your proposal and accept or reject it.
However, not all of your creditors must accept your proposal for it to go ahead.
Providing creditors who are owed at least 50% of your overall debt agree to your proposal, it will go ahead, and other creditors must accept it.
If the only opposition to your proposal comes from creditors who are owed 25% or less of the overall debt, then it will automatically go ahead.
If creditors who are owed more than 25% try to reject your proposal, a Meeting of Creditors can be called so that another vote can be taken.
Should creditors accounting for more than 50% of your total debt vote to accept, the proposal is binding, and all other creditors will be forced to follow the terms of the proposal.
5. Finalizing Your Consumer Proposal
If your consumer proposal is accepted, you will begin making repayments in accordance with the terms.
Typically, a consumer proposal includes other obligations too, so you may need to attend credit counselling sessions for a limited period of time or undertake financial management courses.
It’s extremely important that you keep up with the repayment schedule on your consumer proposal.
If you miss more than two payments, the proposal is deemed to be annulled and you will revert to owing the full amount, in addition to interest and charges.
If your financial situation changes and you think you will be unable to make a payment, contact your licensed insolvency trustee as soon as possible.
In some cases, amendments can be made to reflect a change in your financial circumstances.
However, ignoring the situation, making late payments or missing payments completely will simply cause the consumer proposal to be cancelled.
When you have completed all of the obligations set out in your consumer proposal, your LIT will issue you with a Certificate of Full Performance.
At this stage, the remainder of your debts is officially forgiven, and you will receive further documentation to confirm this.
In addition to this, your licensed insolvency trustee will send additional confirmation to your creditors and the Office of the Superintendent for Bankruptcy and the file will be closed.
Contact a Licensed Insolvency Trustee Today
If you think a consumer proposal could be the right form of debt management for you, talk to a trusted licensed insolvency trustee now.
At Bankruptcy Canada, we’ve been helping people to overcome debt problems since 1999 and we’re on hand to provide the advice and assistance you need too.
With personalized advice and a confidential service, you can take back control and begin dealing with your debts today.
Contact Bankruptcy Canada now on 877-879-4770.