What Is a Consumer Proposal?
It’s important for those experiencing financial debt to understand that a consumer proposal is not a contract or agreement that can be created alone. Unlike a debt consolidation loan that has no legal protection, a consumer proposal is a binding legal agreement between a debtor and their creditors that must be crafted by a Licensed Insolvency Trustee (LIT). During the consumer proposal process, the insolvency trustee will work with you to make an offer to pay your creditors a percentage of what you owe them. Trustees can also get you more time so that you can pay off your total debt. It’s a better option than simply paying off the minimum payments on your own, as a consumer proposal can include freezing your interest.
A consumer proposal cannot exceed five years. The payments you make are submitted through the Licensed Insolvency Trustee, who then distributes the money to your creditors. The insolvency trustee is also permitted by law to hold a portion of each payment for their fees.
When filing a consumer proposal, there are some responsibilities that you’ll have:
- Give your trustee a complete list of all of your assets and liabilities, such as properties or debts.
- Attend the meeting of creditors if a meeting is requested.
- Begin to pay a lump sum or a periodic payment to the insolvency trustee.
- Adhere to any of the conditions made in the consumer proposal.
- Attend two counselling sessions either in-person or by video conferencing.
- Advise the LIT of any changes to your financial situation.
If you neglect to follow the terms of your consumer proposal, you will forfeit the protection and debt relief that the proposal can provide. In the event that a consumer proposal is not accepted, your Trustee will give you advice on other options for debt solutions, such as declaring bankruptcy.
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What Happens When You File a Consumer Proposal?
Your Licensed Insolvency Trustee will file the proposal with the Office of the Superintendent of Bankruptcy (OSB). After filing, any payments you have to make with your creditors will be halted. If there are any legal actions relating to the debt you may be facing, they will be stopped as well.
A report will be submitted to the creditors, which outlines your situation and the cause of your debt problems. The report will include your LIT’s opinion on whether the proposal should be accepted.
How Much Debt Do You Need for a Consumer Proposal?
To file for a consumer proposal, you must owe at least $1,000 in unsecured debt to qualify. It’s important to know how much you have in total debt. To qualify as a single individual, the maximum debt that you can have is $250,000. As for married couples, you can owe up to $500,000 together.
Do Most Consumer Proposals Get Accepted?
When a proposal is filed, your creditors will have 45 days to vote on whether they accept or reject the consumer proposal. If there’s no meeting of creditors requested, that means that the proposal will be accepted by the creditors and binds all of those creditors under the consumer proposal terms, even those that didn’t vote before the deadline.
For a meeting of creditors to be held, creditors owed at least 25% of the total value of the proven claims, as filed on the 45th day after the initial proposal was filed, must request a meeting. LITs can also be directed by the Office of the Superintendent of Bankruptcy (OSB) to call for a meeting of creditors during the same time frame. A meeting of creditors must be held within 21 days after being called. The creditors will then vote to either accept or reject the proposal, or request that you make a change to the proposal terms. If the majority of the creditors vote to accept the proposal either as it was originally filed, or following a change to the terms, then the proposal will have been approved.
If the consumer proposal was not accepted, you may also have to consider other debt consolidation options or declare bankruptcy.
What Is the Difference Between Consumer Proposal & Bankruptcy?
A consumer proposal is a binding agreement made between you and your creditors. This proposal is administered by an LIT, who helps negotiate the terms of your debt repayment. The legally binding agreement protects you from debt collectors and can freeze the accumulated interest.
Bankruptcy is a legal process that relieves you of the debts you’re facing in your financial situation. You can get a free consultation with an LIT to go over your debt-relief options; in this appointment, a Trustee will discuss if bankruptcy might be your best option. Filing for bankruptcy will show on your credit history for six years following your discharge from the process, but the process of bankruptcy can be accomplished in as little as nine months.
There are some differences involved between these two alternatives, such as:
- With bankruptcy, you will have to submit monthly reports on your income and expenses. Consumer proposals don’t require any reporting duties.
- Consumer proposals allow you to keep all of your assets, while bankruptcy may require you to surrender any non-exempt assets.
- The duration varies for these two debt solutions, with consumer proposals taking up to 5 years and bankruptcy taking as little as 9 months.
- The cost associated with consumer proposals is covered as you make your monthly payments. If you’ve declared bankruptcy, the cost involved will depend on your average monthly income, and is calculated specifically for each case.
- Consumer proposals will show for no longer than 6 years on your credit score (sometimes less), where bankruptcy can remain on your history for 6-7 years.
Will a Consumer Proposal Affect My Credit Rating?
If you’ve filed a consumer proposal, it will show on your credit report. The proposal will be removed after three years from the date you have completed the proposal or six years from the date it was filed, whichever comes first.
What Happens If You Miss Payments on a Consumer Proposal?
Consumer proposals allow you to make monthly payments. If you were to miss three payments, or your payment is three months past due, the proposal will be annulled. When annulled, the agreement made on paying your debts will cease, allowing your lenders to once again be able to collect the money you owe them.
What Happens When the Consumer Proposal Is Satisfied?
When the conditions involved in your consumer proposal are satisfied, you will be released from the debts included in the proposal. You won’t be required to pay anything further on your debts. You will then receive a certificate of full performance.
Seeking debt relief can be a difficult task, especially if those debts are weighing you down. No matter how hard of a struggle it can be, we assure you that there are debt solutions available to assist you. Make an appointment for a free consultation today, and we can see if a consumer proposal is the right option for you.