Consumer proposals are becoming increasingly common as an alternative to bankruptcy. They are a way to consolidate unsecured debt and repay it in monthly installments over a five-year period, interest-free. However, the process can be complex. This article will delve deep into how a consumer proposal works, unraveling every step to help you understand it better.
What Is a Consumer Proposal?
A consumer proposal, as an alternative to bankruptcy, allows you to consolidate your unsecured debt and pay all or some of it back in monthly payments and/or lump sums over a five-year period, interest-free. This formal arrangement can only be facilitated by a Licensed Insolvency Trustee (LIT).
Note: A consumer proposal is not a do-it-yourself process.
The Role of a Licensed Insolvency Trustee (LIT)
Your LIT plays a crucial role in the process. They work with you to create an offer for your creditors to either modify your payments or repay only a percentage of what you owe. The success of your proposal largely depends on your LIT’s negotiation skills and your financial circumstances.
Filing a Consumer Proposal
You can’t file a consumer proposal independently. You must file it with an LIT. The first step involves booking a free, no-obligation consultation to determine if a consumer proposal is the right debt solution for you.
Key Takeaway: Always seek professional advice before filing a consumer proposal.
The Process of Filing a Consumer Proposal
The process involves several steps, including meeting an LIT, submitting a proposal to creditors, meeting the terms of your consumer proposal, and eventually being discharged.
Meeting an LIT
The first step is to visit a Licensed Insolvency Trustee. They will guide you through the process and help you determine if a consumer proposal is the right solution for you.
Submitting a Proposal to Creditors
Once you have agreed on the terms with your LIT, they will submit the proposal to your creditors. Your creditors then have 45 days to accept or reject the offer.
Meeting the Terms of Your Consumer Proposal
If your proposal is accepted, you are responsible for making periodic payments to the trustee, who uses that money to pay off your creditors. You are also required to adhere to any other conditions in the proposal and attend two counselling sessions to help you manage your finances better.
Discharge
Once you meet all the conditions, you are legally released from the debts included in the proposal.
Deciding the Payment Amount in a Consumer Proposal
Your creditors vote to either accept or reject your offer. They are motivated to participate in the process if they realize they will receive more from a consumer proposal than if you filed for bankruptcy. If creditors don’t agree, you can modify the proposal and submit it again.
Note: If your proposal is rejected, you might have to consider other debt help options, including declaring bankruptcy.
What Debts Can Be Included in a Consumer Proposal?
Primarily, your unsecured debts are included in a consumer proposal. These can include credit cards, personal loans, payday loans, income taxes, and student loans (as long as you’ve been out of school for more than seven years).
Impact on Assets in a Consumer Proposal
When you file a consumer proposal, all your assets are protected from your unsecured creditors. If you own a home or a car, you will need to maintain payments on your mortgage or car loan to keep them, as these debts are not settled in a consumer proposal.
Impact on Collection Calls
By law, collection actions against you must cease once your consumer proposal has been filed. This will result in a halt to collection calls and letters, wage seizures, and bank freezes.
Joint Debts in a Consumer Proposal
If you have joint debts, it may be appropriate to file a joint consumer proposal, as the non-filing partner will still be liable for the joint debts.
Credit Availability During a Consumer Proposal
Most lenders will not give you credit if your consumer proposal hasn’t been completed. However, you may be able to get a prepaid or secured credit card.
Dealing with CRA Debts in a Consumer Proposal
A consumer proposal includes negotiating a settlement with the Canada Revenue Agency (CRA), too. It’s worth noting that filing a consumer proposal will stop further interest from accumulating and halt any bank account freezes or wage seizures that CRA may have in place.
Can You File More Than One Consumer Proposal?
You can only file another consumer proposal once you have been discharged from the previous one. However, you can add amendments to an active consumer proposal.
Exiting a Consumer Proposal
You’re responsible for making payments to your trustee for the lump-sum or monthly payments detailed in your agreement. Additionally, you must attend two financial counselling sessions. You can pay off the outstanding balance early or increase your monthly payments to exit the proposal earlier.
Conclusion
A consumer proposal can be a practical solution to manage unsecured debts. It’s essential to understand the entire process, from consultation with an LIT to getting discharged, to make informed decisions about your financial future. Always remember to seek professional advice before filing a consumer proposal.
