Understanding Consumer Proposal Costs in Ontario
When faced with financial hardship, many individuals consider filing a consumer proposal in Ontario. However, one of the frequently asked questions is, “How much does a consumer proposal cost in Ontario?” The answer to this question isn’t straightforward as it depends on several factors, including your personal financial situation, the amount of your debt, and who your creditors are.
What is a Consumer Proposal?
Before delving into costs, it’s important to understand what a consumer proposal is. A consumer proposal is a legal agreement set up by a Licensed Insolvency Trustee (LIT), which enables debtors to pay off a portion of their debt, making it manageable and preventing bankruptcy. The debt can be repaid over a period of up to 5 years, and the remaining debt is discharged once the proposal’s terms have been fulfilled.
Factors Influencing the Cost of a Consumer Proposal
Personal Income and Surplus Income
Your income plays a crucial role in determining the cost of your consumer proposal. The more you earn, the more you can afford to repay your creditors. If you’re earning surplus income (income exceeding the limit set by the government), you’ll need to contribute half of that surplus income towards your proposal payments.
Assets
The value of your assets also affects the cost of your consumer proposal. Assets that you would have to surrender if you filed for bankruptcy, such as your home or car, can influence the amount you need to offer your creditors in a consumer proposal.
Your Creditors
Different creditors may have different expectations regarding repayment. Some creditors may accept a lower repayment amount, while others may demand more. Therefore, who you owe money to can significantly impact your proposal’s cost.
The Calculation of a Consumer Proposal Cost
The amount you owe in a consumer proposal is typically calculated based on your income, assets, and the nature of your creditors. In many cases, a consumer proposal can reduce the principal repayment to as low as 25% of the total amount owed. However, the exact percentage varies depending on individual circumstances.
Negotiating Consumer Proposal Payments
The negotiation of consumer proposal payments involves both the debtor and creditor, with the LIT acting as a mediator. After assessing your financial situation, the LIT will suggest a feasible amount to offer your creditors. This amount can be paid over a period of up to 5 years, interest-free.
What If Your Financial Circumstances Change?
If you’re expecting a change in your income, you can adjust your payment plan accordingly. For example, you can arrange for smaller payments at the beginning of the proposal and larger payments towards the end. However, if your financial circumstances take a turn for the worse, you may defer up to two payments during a consumer proposal. If you miss three payments, the proposal fails, and you may need to consider filing for bankruptcy.
Non-Financial Consequences of a Consumer Proposal
Filing a consumer proposal can significantly lower your monthly debt payments, allowing you to build some savings. However, it’s important to remember that a proposal will initially hurt your credit score. A note will appear on your credit report for up to 6 years from the date of filing.
How Are Trustee Fees Paid?
The cost of a consumer proposal includes the trustee’s fees. These fees are set by legislation and are the same for all trustees in Canada. They include a filing fee, counselling fees, and proposal fees, among others. These costs are covered by your creditors as part of the agreement, meaning you don’t have to pay any additional fees upfront.
Conclusion
In conclusion, the cost of a consumer proposal in Ontario is not fixed; instead, it’s influenced by various factors, including your income, assets, and creditors. By working with a Licensed Insolvency Trustee, you can negotiate a payment plan that benefits both you and your creditors, helping you regain control over your financial situation.
