What is a Consumer Proposal?
Learn More From a Licensed
Consumer Proposal Administrator
A consumer proposal is a viable alternative to filing for bankruptcy in Canada. It is a legally binding agreement between an individual and their creditors to pay a reduced amount of their debts within a specified timeframe, usually five years. The goal of a consumer proposal is to provide individuals with a manageable way to eliminate their debt while avoiding the severe consequences of bankruptcy.
Get Your Free Consultation With a Licensed Debt Relief Expert Now!
Find out how you can quickly get out of debt by setting up a free consultation with us today.
How Does a Consumer Proposal Work?
To understand how a consumer proposal works, it is important to know the key components involved. Here are the main steps:
Step 1: Consultation with a Licensed Insolvency Trustee (LIT)
The first step in the consumer proposal process is to consult with a Licensed Insolvency Trustee (LIT). LITs are professionals licensed by the Office of the Superintendent of Bankruptcy Canada who specialize in debt solutions. During the consultation, the LIT will assess your financial situation, review your debts, assets, and income, and help determine if a consumer proposal is the right option for you.
Step 2: Proposal Preparation
If a consumer proposal is deemed suitable for your situation, the next step is to prepare the proposal itself. The LIT will work with you to develop an offer to your creditors, which outlines the amount you can afford to repay and the proposed terms of repayment.
Step 3: Proposal Submission and Creditor Voting
Once the consumer proposal is prepared, it is submitted to the Office of the Superintendent of Bankruptcy Canada, and a copy is sent to your creditors. Creditors then have 45 days to review and vote on the proposal. The proposal must be accepted by the majority of creditors (in terms of dollar value) in order to proceed.
Step 4: Payment and Completion
If the consumer proposal is accepted, you will begin making payments to the LIT as outlined in the proposal. Payments can be made in monthly installments or as a lump-sum payment, depending on the terms agreed upon. Throughout the repayment period, you will also be required to attend two financial counseling sessions to help you manage your finances effectively.
Step 5: Discharge and Credit Rebuilding
Once you have completed all the payment obligations and fulfilled the terms of the consumer proposal, you will receive a certificate of completion. This certificate signifies that you have been legally released from the debts included in the proposal. It is important to note that while a consumer proposal does impact your credit rating, it provides a less severe impact compared to bankruptcy. With proper financial management, you can start rebuilding your credit after the completion of the proposal.
When Should I File a Consumer Proposal to My Creditors?
Our Government Licensed Insolvency Trustees offer you an initial consultation meeting to help you discover if a consumer proposal, or another option, is the best choice for getting out of your money problems.
Our LIT will analyze your money problems and the causes to your problems and explain the pros and cons of each of the solutions that could help with your money problems.
The proposal administrator will help you develop a consumer proposal plan that will be accepted by your creditors and affordable for you to follow; a consumer proposal will be fair for all parties involved.
Debt Relief is Within Reach!
Our government licensed debt relief professionals can help you explore options for getting out of debt.
Free and caring advice.
Get a Fresh Financial Start – Reduce Your Debt by 80%
Stop All Interest Charges & Collection Calls
You are about to be debt free!
Advantages of a Consumer Proposal
A consumer proposal offers several advantages to individuals struggling with debt. Here are some key benefits:
One of the main advantages of a consumer proposal is that it allows you to consolidate your unsecured debts into a single monthly payment. This can make it easier to manage your finances and stay on track with your payments.
Reduced Debt Amount
In a consumer proposal, you have the opportunity to negotiate with your creditors to reduce the total amount of debt you owe. Creditors often agree to a proposal because they would still receive more money compared to if you were to declare bankruptcy.
Protection from Creditors
Once you file a consumer proposal, a stay of proceedings is put into effect. This means that creditors are legally prohibited from pursuing collection actions against you. This protection offers relief from harassing phone calls, wage garnishments, and legal proceedings.
Unlike bankruptcy, a consumer proposal allows you to retain ownership and control of your assets, such as your home or car, as long as you continue making payments on any secured debts associated with those assets.
A consumer proposal stops the accumulation of interest on the included debts, providing financial relief and allowing you to pay off the debt faster.
Eligibility for a Consumer Proposal
While a consumer proposal can be a suitable debt solution for many individuals, not everyone is eligible. Here are the key eligibility criteria:
To be eligible for a consumer proposal, you must be insolvent. This means that you are unable to make your debt payments as they become due, or your total unsecured debt exceeds the value of your assets.
Your total debt, excluding the mortgage on your principal residence, must be below $250,000 to qualify for a consumer proposal. If your debt exceeds this amount, you may need to explore alternative debt solutions.
Consumer proposals are only available to individuals who reside or operate a business in Canada. If you are a non-resident of Canada, you may need to explore debt solutions available in your country of residence.
Ultimately, the approval of a consumer proposal rests with your creditors. They will vote on whether to accept or reject your proposal based on their assessment of the offer presented.
Consumer Proposal vs. Bankruptcy
While a consumer proposal and bankruptcy share some similarities, there are key differences to consider. Here are some points of comparison:
In a consumer proposal, you make reduced payments to your creditors over a specified period of time, typically five years. With bankruptcy, your debts are generally discharged, and you are not required to make ongoing payments.
With a consumer proposal, you can retain ownership and control of your assets as long as you continue making payments on any associated secured debts. In bankruptcy, certain assets may be liquidated to repay creditors.
Both a consumer proposal and bankruptcy will have an impact on your credit rating. However, a consumer proposal generally has a less severe impact and stays on your credit report for a shorter duration compared to bankruptcy.
A consumer proposal typically lasts for a maximum of five years, whereas bankruptcy can have a longer-lasting impact on your financial situation.
It is important to consult with a Licensed Insolvency Trustee to understand which debt solution is most suitable for your specific circumstances.
Discuss options to get out of debt with a trained & licensed debt relief professional.
What are my Responsibilities in a Consumer Proposal?
When you submit a consumer proposal to your creditors you will have certain responsibilities you must:
* Make all the required payments as listed in the terms of your consumer proposal.
If you miss three payments as required your consumer proposal will be cancelled and your creditors will be able to come after you and attempt to collect on your debts.
If your consumer proposal is cancelled you won’t be able to file another proposal;
* Submit a list of your assets and liabilities (debts) that you have;
* Attend two counselling sessions at the LIT’s office;
* Advise your Licensed Insolvency Trustee of any address change;
* Provide the trustee with any information she or he asks for and assist in any way requested to administer the proposal.
* You might be required to attend a meeting of creditors if your creditors request such a meeting.
How Does a Consumer Proposal Work?
Your consumer proposal administrator will submit the proposal plan to all of your creditors and once the proposal is submitted your creditors will have 45 days to vote to either accept or not accept the proposal plan.
They can also vote to accept the proposal if you accept certain conditions they request, such as additional payments each month or payments for a longer term.
If the creditors request, a meeting of creditors will be held, although they can also mail their vote to your trustee / proposal administrator.
The creditors meeting will be held if one or more of your creditors holding at least 25% of the total proven claims of debt against you request a meeting of creditors to be held within 45 days of the proposal being submitted.
Your LIT will also call a meeting of creditors within the 45 day period if so directed by the Office of the Superintendent of Bankruptcy.
During this meeting, which will be held within 21 days of being requested, your creditors will vote to accept or reject the proposal.
If no meeting of creditors is requested, or your creditors do not supply a vote within the same 45 day time frame then the proposal be automatically be deemed accepted by the creditors.
Even if certain creditors object or vote to reject the proposal if more than 50% (a simple majority of the dollars votes, ie 50% +1) of the creditors vote to accept the consumer proposal it will be deemed accepted and any creditor who objects to the proposal will be bound to the terms of the proposal.
Each dollar you owe will count as a vote.
All of these are good options for clearing unsecured debt.
Example of a Creditors Vote on the Proposal
For example, if you owe $20,000 to credit card 1 at creditor #1, $30,000 to credit card 2 at creditor #2, and $80,000 on a personal loan to creditor 3 and creditors 1 and 2 vote to reject the proposal but creditor 3 votes to accept the proposal, the proposal will be deemed accepted even though there were 2 creditors voting against accepting the consumer proposal plan and only one creditor voting to accept it because the one creditor voting to accept the proposal had more votes because they had more debt owed to them than creditor 1 and 2 combined.
When your proposal is voted to be accepted your creditors or the OSB will have 15 days in which they can request that your LIT has the proposal reviewed by applying to the court.
The consumer proposal will be accepted by the court if no such request is made within the required time frame.
A consumer proposal plan can last for up to 60 months.
The reason the length of a consumer proposal is limited to 5 years is to give people hope they will eventually be debt free.
Any longer than 5 years and people can get discouraged and lose faith in their proposal plan.
When you submit a consumer proposal your LIT will file the proposal with the OSB (Office of the Superintendent of Bankruptcy).
As soon as your proposal is filed you will make payments to your LIT (Licensed Insolvency Trustee) instead of your creditors.
Actions such as wage garnishments (a collection of part of your salary by your creditors) or lawsuits against you for debt collection will be immediately stopped through a process known as the “stay of proceedings.”
In addition, if your creditors are collecting your salary (garnishing your wages) or have filed lawsuits against you, these actions are stopped.
What Happens When My Consumer Proposal is Accepted?
Once your consumer proposal has been accepted you will start following the terms of the proposal:
* You will make the payments as required under the terms of the proposal.
These payments can be a lump-sum payment made up front to end the consumer proposal as soon as possible, or monthly payments for a certain period of time lasting no longer than 60 months.
Most consumer proposal payment plans last approximately 3 years;
* You will also be responsible for any other conditions that are required in your proposal plan; and
* You will be required to attend the required two counselling sessions.
The point of these meetings is to help you understand the cause of your financial problems that led to you filing a consumer proposal and help you learn how to manage your finances properly in the future so you can avoid money problems in the future.
Your monthly payment will be the only payment you make; all fees for the trustees’ time and other fees are included in this payment (the trustee will take approximately 20% of your proposal payments to cover their administration fees).
What Happens if my Proposal is Rejected?
Almost 100% of proposal plans are accepted because the main condition of a consumer proposal is your creditors must be better off than if you file bankruptcy.
When structuring your proposal, your LIT will help make sure the proposal plan fits this requirement and that the plan you submit to your creditors has the greatest chance of being accepted.
However, in rare cases, it is possible for a proposal to not be accepted.
If your proposal is rejected you can:
* Make changes to the proposal, such as increasing the monthly payment, the size of the lump sum payment, or increasing the number of months to make payments;
* Consider seeking other options for getting out of debt; or
* You can claim bankruptcy.
If your consumer proposal is rejected you are not automatically forced into bankruptcy.
Impact of a Consumer Proposal on Credit Rating
When you file a consumer proposal your credit rating will automatically be set to an R7 rating, while if you file bankruptcy you will receive an R9 rating which is the worst possible credit so a consumer proposal does not have as dramatic an effect on your credit rating as a bankruptcy.
The record of your consumer proposal will remain on your credit report for 3 years after you receive your “certificate of completion” after making your final payment as required in your proposal.
As a consumer proposal can last for up to 5 years, the record of your proposal can remain on your credit report for up to 8 years.
You can also complete a consumer proposal in only a few months by offering a lump sum payment which in turn means the record of your consumer proposal will only remain on your credit report for slightly more than 3 years.
When you receive your certificate of performance you can send a copy of this document to your creditors which will allow your credit report to be updated as soon as possible.
What Happens to my Secured Debts in a Consumer Proposal?
You won’t be able to include your secured loan debts in a consumer proposal.
Secured debts include car loans and mortgages.
You will be required to keep making the required payments on your mortgage and car loan.
If you cannot afford to make these payments, along with your consumer proposal payments, you might have to sell the asset.
Additionally, if you have assets that you can sell and repay what you owe your creditors may reject your proposal.
If you would like to know more about what a consumer proposal is you can contact one of our Licensed Insolvency Trustees, who are also the only experts that can help you file a consumer proposal.
Alternatives to a Consumer Proposal
While a consumer proposal can be an effective debt solution for many individuals, it is essential to explore all available options before making a decision. Here are some alternatives to consider:
Debt Management Plan
A debt management plan is an informal arrangement with creditors facilitated by a credit counseling agency. It involves consolidating your unsecured debts into a single monthly payment, usually with reduced or eliminated interest charges.
Orderly Payment of Debts
Orderly Payment of Debts (OPD) is a debt repayment arrangement available in specific provinces in Canada. It involves consolidating unsecured debts into one monthly payment, with an interest rate of five percent and a payment period of up to three years.
A consolidation loan involves obtaining a loan from a financial institution to pay off multiple debts, consolidating them into a single monthly payment. This option requires good credit and may require collateral.
Bankruptcy is a legal process that provides immediate relief from unsecured debts. It involves the liquidation of assets to repay creditors and can have long-term consequences on credit rating and financial standing.
Each debt solution has its own advantages and considerations. It is important to consult with a professional to determine the most suitable option for your specific financial circumstances.
A consumer proposal is a legally binding agreement that allows individuals to consolidate their unsecured debts and make reduced payments over a specified period of time. It offers several advantages, including debt consolidation, reduced debt amounts, protection from creditors, asset retention, and interest relief. Eligibility for a consumer proposal depends on factors such as insolvency, debt amount, Canadian residency, and approval by creditors. It is important to consider alternatives and consult with a Licensed Insolvency Trustee to determine the best debt solution for your specific circumstances. Remember, taking control of your financial situation is the first step towards a brighter future.