Understanding the Expense of a Consumer Proposal in Ontario
In the financial world, there are numerous solutions available to help individuals grappling with unmanageable debt. One such solution, particularly popular in Ontario is the consumer proposal. However, a common query that arises when considering this debt relief solution is, “What is the cost of a consumer proposal in Ontario?” This article will delve into the intricacies of this topic, providing a comprehensive overview to aid your understanding.
Introduction to Consumer Proposals
Firstly, it’s crucial to understand exactly what a consumer proposal entails. A consumer proposal is a formal, legally binding process conducted under the Bankruptcy and Insolvency Act. It is an arrangement negotiated with your creditors through a Licensed Insolvency Trustee (LIT) to pay back a percentage of the debt owed to them or extend the time you have to pay off the debts, or both.
Two-Part Cost Structure of a Consumer Proposal
When assessing the cost of a consumer proposal, it’s important to note that it’s divided into two primary components:
- The cost of filing the consumer proposal.
- The monthly payments made as part of the consumer proposal.
Let’s delve deeper into each of these components to provide a clearer picture of the overall cost involved in a consumer proposal in Ontario.
The Filing Cost of a Consumer Proposal
The process of filing a consumer proposal involves a fee that is paid to the Office of the Superintendent of Bankruptcy (OSB). This fee stands as a regulatory cost and is utilized to appoint your Licensed Insolvency Trustee as the administrator of your consumer proposal. It’s important to note that this fee is not an additional out-of-pocket expense for the debtor but is rather included in the total cost of the consumer proposal.
Monthly Payments of a Consumer Proposal
The second component of the cost involves the monthly payments made as part of the consumer proposal. These payments are calculated based on what you can afford and what your creditors deem acceptable. Several factors are taken into account while calculating these payments:
- The income of your household and your contribution to it.
- Your assets.
- The total amount of debt you owe.
- The specific creditors you owe.
- Whether you’ve previously filed for bankruptcy.
The higher your monthly income and assets, the larger the settlement your creditors will expect from your consumer proposal. Similarly, if you owe a larger amount of debt or to certain creditors, they might demand a larger settlement.
How Trustee Fees are Paid in a Consumer Proposal
One recurring question is how the fees of a Licensed Insolvency Trustee (LIT) are handled within a consumer proposal. The LIT’s fees are taken from the proposal fund, which is the accumulation of your monthly payments in their trust account. It’s important to understand that you do not pay a separate fee for a Trustee’s services – your proposal payments include the Trustee’s fees as well as the settlement payment to your creditors.
Dealing with Debt Consultants
In the debt relief industry, there are entities known as debt consultants who are not Licensed Insolvency Trustees but who may charge you a substantial fee simply for referring you to a Trustee with whom they have a business relationship. It’s critical to be cautious when dealing with these consultants as their fees can significantly inflate the overall cost of your consumer proposal.
The Role of a Licensed Insolvency Trustee
A Licensed Insolvency Trustee (LIT) plays a pivotal role in the consumer proposal process. The LIT is a professional licensed by the federal government to provide debt solution services. They are the only professionals who can file a consumer proposal or bankruptcy application on your behalf. The LIT will help you develop a proposal, which will outline how you plan to pay off your creditors. They are also responsible for submitting the proposal to the creditors and facilitating the entire process.
Possible Changes in Financial Circumstances During a Consumer Proposal
Life is unpredictable, and your financial circumstances can change while you are in the midst of fulfilling your consumer proposal. For instance, if your financial situation improves, you can increase your monthly payment amount to finish your proposal sooner. Conversely, if your financial situation deteriorates, you will need to discuss this with your LIT to understand the best way forward.
Assessing Affordability of a Consumer Proposal
One of the key benefits of a consumer proposal is that the payment plan is designed based on what you can afford to pay, considering your debts and your income. The proposal takes into account all of your regular household expenses. This means consumer proposals are interest-free and there are no additional costs aside from your monthly consumer proposal payment.
Final Thoughts
In most cases, a consumer proposal is a more preferable solution to bankruptcy as it provides a manageable monthly payment plan without requiring you to give up your assets. However, the cost of a consumer proposal in Ontario, or anywhere else, is unique to each individual’s circumstances. It’s always recommended to seek the advice of a Licensed Insolvency Trustee to understand the full implications and costs involved. By doing so, you can ensure that you are making an informed decision about the best path to take towards financial recovery.
