When does a Consumer Proposal become Legally Binding for your Unsecured Debt Creditors?
If you’re seeking debt relief, you may be considering a consumer proposal.
A consumer proposal is a legally binding agreement based on the Bankruptcy and Insolvency Act of Canada that is negotiated by a Licensed Insolvency Trustee (LIT) between you and your creditors.
The objective is to provide as fair of a repayment plan to your creditors while allowing you to reduce your monthly payments to your creditors.
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When does the consumer proposal become a legal agreement?
The consumer proposal is a lengthy process but becomes legally binding to your creditors only once your proposal is accepted by them.
Prior to that, there are several steps that you and your trustee will take.
The first of which is filling for a stay of proceedings.
Your LIT will e-file your proposal documents with the Canadian government, which puts the proposal process into motion.
At this point, you are legally protected from further creditor actions, such as harassing phone calls and wage garnishments.
It is key to remember that a consumer proposal is only used for unsecured debt.
What this essentially means is that a consumer proposal is not ideal for someone who can no longer make mortgage payments, or payments on a loan with an asset, such as a car loan.
In these scenarios, there are several options, one of which is declaring bankruptcy.
Consumer proposals are ideal for those who are drowning in unsecured credit card debt with no way out.
How long do creditors have to accept or deny the proposal?
So, how exactly do these negotiations on a consumer proposal occur?
How much weight does a creditor have in deciding what is repaid, and at what rate?
Any of your unsecured creditors have 45 days to file any claims and vote for or against your proposal.
During this time, your creditors may ask for a meeting to discuss the terms further with your trustee.
If only 25% of your creditors request a meeting to review the proposal in person, the consumer proposal is automatically accepted.
However, if more than 25% of your creditors request a meeting with your LIT, it is required that you consider further negotiations for your proposal.
Once these are decided on, and the majority of your creditors agree, the proposal is considered a legally accepted agreement.
Even if there are creditors who voted against your proposal, it is at this point that the consumer proposal is legally binding for both you and your unsecured-debt creditors.
This is a huge benefit if you are struggling with multiple creditors.
It is not necessary to arrange individual deals for each creditor.
Instead, once the majority has decided it is agreeable, the consumer proposal is passed and a legal agreement.
When a consumer proposal is put together, your LIT takes into consideration several variables including the following: your current income, how many creditors you have, the dollar amount of the individual claims you owe, and who has voting weight to influence the proposal.
Since the trustee is a non-biased 3rd party, the goal is to create a consumer proposal in which each party agrees to the terms of the proposal.
Need help out of the debt cycle?
When you’re stuck in a debt cycle, it can feel impossible to get out of.
If you feel like you’re drowning in debt, and can’t make your credit card payments, it may be time to talk with a professional debt counselor or Licensed Insolvency Trustee.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal