A Consumer Proposal is a significant financial tool that can help individuals grappling with unmanageable debt. To understand this process better, we will address some of the top questions that individuals frequently ask about Consumer Proposals.
Understanding Consumer Proposals
Before we delve into specifics, it’s essential to have a basic understanding of what a Consumer Proposal entails. A Consumer Proposal is a legally binding agreement between a debtor and their creditors. It’s designed to allow the debtor to pay off their debts in a manageable way, avoiding the harsher consequences of bankruptcy.
1. How Does a Consumer Proposal Work?
A Consumer Proposal is a formal agreement overseen by a Licensed Insolvency Trustee (LIT). Once you engage an LIT, they will work with you to develop a payment plan that aligns with your financial capabilities. This proposal is then presented to your creditors. If the majority of your creditors accept the proposal, it becomes legally binding.
2. What are the Eligibility Criteria for a Consumer Proposal?
For an individual to file a Consumer Proposal, they must owe less than $250,000, excluding the mortgage on their principal residence. For joint proposals, the debt limit is raised to $500,000. These proposals are typically filed with the Office of the Superintendent of Bankruptcy (OSB).
3. What Happens if Creditors Reject the Proposal?
Creditors have 45 days from the filing date to accept or reject the proposal. If they don’t respond within this timeframe, they are deemed to have accepted it. If your proposal is rejected, you can either amend the terms and resubmit it, explore other debt relief options, or file for bankruptcy.
4. Can Tax Debts be Included in a Consumer Proposal?
Yes, debts owed to the Canada Revenue Agency (CRA), such as personal taxes and GST/HST, can be included in your proposal. However, you must be up to date on your tax filing for the CRA to consider your proposal.
5. How Does a Consumer Proposal Impact My Credit Report?
Your credit report will reflect that you’ve entered a debt settlement arrangement, coded as R7, which will remain on your report for three years after the proposal’s completion.
6. What is the Cost of Filing a Consumer Proposal?
Filing a Consumer Proposal does not incur additional costs. The LIT’s fees are deducted from your proposal payments.
7. How Can I Find a Licensed Insolvency Trustee?
Licensed Insolvency Trustees can be found by conducting a search on the Trustee Registry of the Office of the Superintendent of Bankruptcy website.
8. How is a Consumer Proposal Different from Bankruptcy?
A Consumer Proposal is not the same as bankruptcy. While both are legal processes, a Consumer Proposal allows you to protect your assets and negotiate your debt down to a more manageable amount.
9. Does a Consumer Proposal Require Asset Liquidation?
Unlike bankruptcy, a Consumer Proposal does not necessitate the liquidation of your assets. You have the freedom to decide whether to sell your assets to pay off your proposal faster.
10. What Happens When My Financial Situation Changes after Filing a Proposal?
Unlike bankruptcy, you are not required to report changes in your income or living situation after filing a Consumer Proposal. Any additional income you earn after filing is yours to keep.
In conclusion, a Consumer Proposal can be a viable alternative to bankruptcy for those struggling with debt. However, it’s essential to consult with a licensed professional to evaluate your financial situation and consider all possible options before making a decision.
