Consumer Proposal

You can settle your debts without the impact of Bankruptcy

If you are looking to settle your debts and avoid bankruptcy then a consumer proposal may be the answer for you.

A consumer proposal is a viable restructuring option for more Canadians every year.  It allows the consumer to seek legal protection from their creditors under a Federal Statute (Bankruptcy and Insolvency Act) and settle their debts without resorting to bankruptcy

Highlights

  • Pay back a percentage of what you owe without interest or penalty
  • The repayment period can be up to 60 months
  • The repayment amount is based on your budget and ability to pay

Consumer Proposal Benefits

  • Stops most wage garnishments
  • Stops  interest  accumulating from the day the consumer proposal is filed
  • Stops collection agencies and creditors from calling
  • Consumer proposals do less damage on your credit bureau than a bankruptcy by reporting an R7 instead of an R9.

A consumer is required to give full disclosure of all their assets, liabilities, income and expenses as well as business interest as part of the process.

 

Some Additional Things you need to Know.

  • You must be insolvent to file a consumer proposal (debts are more than assets)
  • Your creditors are required to vote on the consumer proposal.  Proposal must have a majority in dollar value voting in favor for the proposal to obtain creditor approval.
  • Consumers must attend 2 mandatory budget counselling sessions
  • You cannot pick and choose the debts that are included (all debts must be included)
  • You cannot eliminate support or alimony obligations
  • You cannot eliminate student loans under 7 years old
  • You cannot include secured debts such as mortgages or car loans
  • You are allowed to keep certain assets based on Provincial legislation

Frequency Ask Questions

Who can make a Consumer Proposal?

To qualify to make a Consumer Proposal you must owe between $1,000 and $250,000 (excluding the mortgages on your house).

If the debts exceed $250,000, there are other provisions of the Bankruptcy Act to deal with these debts. An individual who is already in bankruptcy may make a Consumer Proposal, if the Inspectors, if any, have given their approval.

A joint Consumer Proposal may be filed by two or more individuals if the Consumer Proposal can be reasonably dealt with together because of the financial relationship of those involved (e.g. married couple, common-law partners).

If the creditors reject the Consumer Proposal, you will no longer be protected by the Act and your creditors will again be able to take steps to recover their debts.
You cannot file another Consumer Proposal; however, there may be other alternatives available to you

What are the major steps in a Consumer Proposal?

1.Contact the Trustee and file the Consumer Proposal.
A Trustee is an individual or corporation who is licensed by the Government to administer Proposals. The Trustee will explain the Consumer Proposal process and other alternatives, and will prepare the necessary documents.
Upon filing of the Consumer Proposal with the Superintendent, the Trustee takes over all dealings with creditors. Interest on the amounts owing to the creditors stops accruing at the time of filing the Consumer Proposal.

2.The creditors vote on the acceptance of the Consumer Proposal.
Unsecured creditors will have 45 days to request a meeting to vote on the Consumer Proposal.
If creditors do not respond, they will be considered to have accepted the Consumer Proposal.

3.Unsecured creditors commonly don't request a meeting.
If enough creditors request a meeting, the Trustee will arrange a meeting to vote on whether to accept or reject the Consumer Proposal.
If the Consumer Proposal is not accepted, you will have to consider other alternatives

4. Make payments to the Trustee, who in turn makes payments to the creditors.
Once the Consumer Proposal is accepted, you will make the payments to the Trustee, as provided for in the Consumer Proposal.
This may involve a one-time lump sum payment or monthly payments for a period of up to five years or both.
"Dividend" payments will be made by the Trustee to the creditors. If you default in your payments, the Consumer Proposal will be annulled.

5.Attend counseling sessions as required. The Trustee will arrange for two counseling sessions during the Consumer Proposal.
The counseling will help you understand the cause(s) of your financial difficulty, which sometimes is non-budgetary.
These sessions will also provide information to help you manage your financial affairs.
You must attend both of the counseling sessions.

6. Complete your payments.
Once the payments are completed and two counseling sessions have been attended, the Trustee issues a certificate which shows that the terms of the Consumer Proposal have been completed.
Any balance still owing to the unsecured creditors from the original date of the Proposal is legally forgiven.

What happens if my circumstances change?

You are required to advise the Trustee of any changes in your circumstances that could jeopardize your ability to make the payments required under the Consumer Proposal.
However, this will not change the amounts to be paid.

The Consumer Proposal will be in default if:
• three monthly payments have been missed, or • you are required to make payments less frequently than monthly and you miss any payment for more than three months. In these cases, creditors will again be able to take steps to recover their debts, less any payments paid to them during the Consumer Proposal.

What happens with creditors and my credit rating?

If a creditor has a lien on any assets (known as a secured creditor), they are not usually bound by the Consumer Proposal.
Examples would include a car loan or a loan secured by a lien or furniture.
In such cases, you may wish to do one of the following: surrender your secured asset to the secured creditor and obtain a receipt.
Any balance left due after the asset has been sold by the creditor may be a claim in the Consumer Proposal, depending on Provincial legislation, or make arrangements to continue to pay the secured creditor in order to keep the asset.

Co-signers

Consumer Proposals will not cancel the liability if you have guaranteed or co-signed any loans.
You will still be responsible for these debts less any payments the creditor receives from the Consumer Proposal.

Credit Rating

Once the level of debt has become so great that a Consumer Proposal is required, the credit rating is usually at its lowest.
The ability to obtain and use credit after completion of the Consumer Proposal will depend upon your ability to convince a potential lender of your future personal financial maturity.

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