Consumer Proposals In Canada
What Is A Consumer Proposal?
A consumer proposal is a legal agreement between you and your creditors where you agree to pay back a portion of what you owe, and they agree to forgive the rest. If you are burdened with a heavy debt load and unable to keep up with payments, a consumer proposal may be the appropriate solution. Here are some things you should know:
Regulated by the Federal Government
- Consumer proposals are regulated by the Office of the Superintendent of Bankruptcy Canada. It is a legally binding process that can only be administered by a Licensed Insolvency Trustee in accordance with the Bankruptcy and Insolvency Act (BIA).
Alternative to Bankruptcy
- Consumer proposals are an alternative to bankruptcy to get you out of debt and give you a fresh start.
- With a consumer proposal, you will only pay back a portion of what you owe, without interest. In many cases, the debt can be reduced by up to 70%.
- You can include most unsecured debts in a consumer proposal. This includes tax debt, credit cards, lines of credit, payday loans, utility bills, and more. Secured debts like your mortgage and vehicle payments cannot be included.
- Student loans can only be included with a consumer proposal if it has been at least seven (7) years since you completed your studies.
- You will make fixed monthly payments that can be spread out over a maximum period of five years, giving you more time to pay back the negotiated amount.
How To File A Consumer Proposal
Only a Licensed Insolvency Trustee (LIT) can file a consumer proposal for you. You cannot do it yourself. LITs are highly trained debt consultants, regulated by the federal government through the Office of the Superintendent of Bankruptcy. Here is the process:
1. Initial Consultation – A Licensed Insolvency Trustee will meet with you to review your debt situation and show you what options are available. The initial meeting is generally free and there is no obligation to return or move forward with any particular solution.
2. Engaging a Trustee – Once you choose to move forward with a consumer proposal you can formally engage a Licensed Insolvency Trustee of your choice. They may require an initial deposit to begin the process.
3. Repayment Plan – The Trustee will work with you to determine a repayment amount that you are able to afford and is acceptable to your creditors. In most cases the debt can be significantly reduced. The proposal documents will include how much you will repay and the length of the repayment period.
4. Filing the Proposal – Your LIT will file the proposal with the court and then contact each of your creditors. The creditors will have 45 days to review and accept the proposal
5. Accepting the Proposal – The proposal must be accepted by creditors representing at least 50% of your debt. Once it is accepted it becomes binding on all creditors and you will begin to make your monthly payments.
The First Step:
The initial consultation meeting is free and confidential. Take the first step by finding a Licensed Insolvency Trustee near you!
Consumer Proposals vs Bankruptcy
Consumer proposals and personal bankruptcy will both eliminate your debts and give you a fresh start, but consumer proposals have some advantages for those who qualify.
Payments – Consumer proposal payments are a fixed amount based on negotiations with your creditors. Bankruptcy payments are calculated from your income and require monthly statement submissions.
Assets – With a consumer proposal you maintain control of your assets. Once you declare bankruptcy you are required to surrender non-exempt assets to the trustee.
Repayment Period – A consumer proposal can have a maximum repayment period of five years, accommodating smaller fixed monthly payments if necessary.
Credit History – A consumer proposal will stay on your credit history for three years once it is complete. Bankruptcy will stay on your history from seven years following your discharge.
A LIT can review the differences with you in more detail as you consider your options.
Frequently Asked Questions:
What is a consumer proposal?
A consumer proposal is an alternative to bankruptcy in Canada. You agree to pay a portion of your debts, and your creditors agree to forgive the balance. An insolvency trustee can help you determine if it is suitable in your case as well as examining other available options for you.
How much does a consumer proposal cost?
With a consumer proposal, you will be responsible to make monthly payments. The amount will be based on the negotiated repayment percentage and the length of the proposal term. The trustee is paid with funds collected through your monthly payments. The trustee will work with you to determine what is manageable in your situation.
What debts can be included?
You can include most unsecured debt like credit cards, payday loans, lines of credit, income tax debt, phone bills, utility bills, and in some cases student loans (if it has been seven years since you completed your studies). You cannot include any secured debts like a mortgage or most vehicle financing.
Will I lose my home or vehicle?
With a consumer proposal, you maintain control of your assets. You will not be required to surrender your home or vehicle.
How do I know if a consumer proposal is right for me?
The first step is typically a free consultation meeting with a Licensed Insolvency Trustee. The trustee will review your situation and show you what options are available. From there you can make an educated decision, knowing how each option will impact you.
Will it impact my credit score?
A consumer proposal is reported to the credit bureaus and results in an R7 rating. The proposal will stay on your credit history for up to three years following its completion.