What is a Consumer Proposal
We often hear the question, “Is a Consumer Proposal worth it?” Let’s define exactly what a Consumer Proposal is. Per the Office of the Superintendent of Bankruptcy (the OSB) they define it as follows.
“A consumer proposal is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). In this process, the LIT will work with you to develop a “proposal”—an offer to pay creditors a percentage of what is owed to them, or extend the time you have to pay off the debts, or both. The term of a consumer proposal cannot exceed five years.
Payments are made through the LIT, and the LIT uses that money to pay each of your creditors.”
In our experience, a Consumer Proposal is a tool used by debtors to reduce the amount of their debt, (debt reductions of 10-75% are not uncommon).
How is a Consumer Proposal different from a Bankruptcy
Consumer Proposals differ from a Bankruptcy, but some similarities exist. Just like in a bankruptcy, while completing a Consumer Proposal, you can’t be sued, garnished or harassed by the creditors that are included in the proposal. It can include even debts to Canada Revenue Agency for amounts such as income tax and GST. Where a Consumer Proposal differs from a Bankruptcy is that it is generally (depending on the situation) a longer process. (5 years rather than a minimum of 9 months), However, you can prepay your Consumer Proposal early. Early payment would end the process and shorten the time it remains on your credit report.
A Consumer Proposal may also allow you to keep existing assets (ie a car or house). These assets are all factored into the payment proposed to the Creditors. In a Bankruptcy, the options are more limited when dealing with these assets, and sometimes must be sold. A proposal also appears differently on your credit report than a bankruptcy.
So is a Consumer Proposal worth it?
So, to summarize, a Consumer Proposal must be administered by Licensed Insolvency Trustees by using provisions of the Bankruptcy and Insolvency Act, but a Proposal is not a Bankruptcy. They are separate processes to reduce your debt. Each situation is unique, so what happens in one bankruptcy or proposal may not be what happens in the next. The only way to know for sure if a Consumer Proposal is right for you, is to speak to a Licensed Insolvency Trustee about your situation. Not sure if there is one near you? Use the federal tool to find an LIT near you. Or Contact us to schedule your free, no obligation consultation.