Emerging from a deep sea of debt can be a daunting task. One potential lifeboat in such a scenario is a Consumer Proposal – an appealing alternative to bankruptcy in Canada. But what is a consumer proposal, and crucially, how to qualify for a consumer proposal? This guide aims to answer these questions and more.
What is a Consumer Proposal?
A consumer proposal is a formal, legally binding process initiated under the Bankruptcy and Insolvency Act. It’s a debt settlement plan negotiated through a Licensed Insolvency Trustee (LIT). In essence, it’s an agreement that lets debtors pay back a percentage of what they owe, extend the payment period, or both.
Advantages of a Consumer Proposal
Consumer proposals come with an array of benefits that make them an attractive option. Here are some of their key merits:
- Debt Reduction: Consumer proposals can decrease your unsecured debt by up to 80%.
- Asset Retention: Unlike bankruptcy, a consumer proposal allows you to keep your assets, such as your house, car, and equity.
- Interest Freeze: Once a consumer proposal is accepted, interest charges and penalties on your debts are frozen.
- Legal Protection: Filing a consumer proposal grants you legal protection from debt collectors.
- Repayment Flexibility: The repayment term for a consumer proposal is usually up to five years, but it can be paid off sooner without any penalties.
Who Can File a Consumer Proposal?
Before we dive into how to qualify for a consumer proposal, it’s essential to understand who can file one. The eligibility requirements are as follows:
- Must be an individual (businesses cannot file consumer proposals).
- Must be at least 18 years old.
- Must have a stable source of income.
- Must owe at least $1,000 but no more than $250,000, not including the mortgage on your main residence.
- Must not have any prior proposal proceedings still open.
If you tick all these boxes, you’re a step closer to qualifying for a consumer proposal.
How to Qualify for a Consumer Proposal: The Process
Meeting the basic eligibility requirements is just the beginning. Here’s the step-by-step process of how to qualify for a consumer proposal:
- Initial Consultation: The process begins with a free consultation with a Licensed Insolvency Trustee (LIT). They will assess your financial situation and determine if a consumer proposal is the best option for you.
- Proposal Preparation: If a consumer proposal is deemed suitable, the LIT will help you develop an offer to present to your creditors. This proposal should reflect an amount you can realistically pay over a specified period.
- Proposal Submission: The LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB). Once filed, all actions from creditors, including wage garnishments and lawsuits, will cease.
- Creditors’ Meeting and Voting: Creditors have 45 days to either accept or reject the proposal. In some cases, a creditors’ meeting may be called.
- Proposal Acceptance: If the creditors accept the proposal or if no objections are made within 45 days, the proposal is deemed accepted.
- Fulfillment of Proposal Terms: You must adhere strictly to the proposal terms, including making all payments on time and attending mandatory credit counselling sessions.
- Proposal Completion: Once all the terms are fulfilled, you will be legally released from the debts included in the proposal.
Joint Proposals: Qualifying as a Couple
In some situations, two people, often spouses, may want to file a joint consumer proposal due to shared debts or co-signed loans. To qualify for a joint proposal:
- The individuals involved must have the same or substantially similar debts.
- The total combined debt must not exceed $500,000, apart from the main residence’s mortgage.
Filing a Consumer Proposal while Bankrupt
Can you file a consumer proposal if you’re already bankrupt? The answer is yes. This could be a consideration if your financial situation changes after declaring bankruptcy. For instance, if you start a new job and end up earning a higher income, the resulting surplus income could mean higher payments. Changing to a consumer proposal might reduce your monthly payment by extending the repayment term and making the payments more manageable.
Finding a Licensed Insolvency Trustee
The first step in qualifying for a consumer proposal is finding a reputable Licensed Insolvency Trustee (LIT). A LIT is the only professional in Canada legally able to file all forms of debt relief, including consumer proposals. They will guide you through each step of the process, from the initial consultation to the final payment.
Wrapping Up: Is a Consumer Proposal Right for You?
Understanding how to qualify for a consumer proposal is the first step towards managing your debt more effectively. However, it’s crucial to remember that while a consumer proposal can be a lifeline in times of financial distress, it’s not a one-size-fits-all solution. Each financial situation is unique, and what works for one person might not work for another.
Before deciding on a consumer proposal, consider all your options. Consult with a Licensed Insolvency Trustee to explore all available avenues of debt relief. They can provide expert advice tailored to your specific financial circumstances. Remember, the goal is not just to escape debt, but to build a sustainable financial future.