What is a Consumer Proposal and how does it work?

My name is Crystal Buhler, and I’m a Licensed Insolvency Trustee with C. Buhler & Associates Ltd. You may have heard about Consumer Proposals, but aren’t quite sure what they are, or how they work.

A consumer proposal is a legally binding debt settlement agreement. It will repay your creditors a percentage of what you owe, and is often used to freeze interest, reduce principal, or both, in exchange for full debt forgiveness. Consumer Proposals can only be filed with a Licensed Insolvency Trustee, and are the only federally approved plan to reduce or eliminate debt.

When someone contacts me and says things such as:

  • I want to pay my debt, but I just can’t pay all of it at once!
  • I want to pay them something, but I just can’t get ahead of the interest – the rates are SO high
  • My creditors think I can pay them a big lump sum now….I’d be ok if I could make payments over time, but I just don’t have it today.

I consider these people to be the perfect candidates for a Consumer Proposal.

2/3 of Canadians who work with an LIT chose a consumer proposal, instead of a bankruptcy. Payment terms are calculated at an amount between what your creditors expect to receive and what you can afford to repay. Acting as an Administrator for your proposal, a Licensed Insolvency Trustee will meet with you to help formulate an offer to your creditors, and give you their thoughts, based on years of working with creditors, on what they feel might be accepted.

Every Consumer proposal is unique. Proposal payments can be spread out over a maximum of 5 years, and may contain monthly payments, lump sum payments, or even liquidation of an asset, if you so choose. You always have the option to pre-pay your agreement if your circumstances improve.

The cost of a consumer proposal is regulated by the federal government, and each Trustee in Canada would be paid the same. Trustees are paid for their services only after a proposal is filed, and a portion of your monthly payment goes toward their fee. You don’t get a separate bill – the fee for Trustee services is built right into the payments.

A consumer proposal is the only debt settlement program endorsed by the Canadian Government. This makes it a safer debt settlement solution than informal options through a debt consultant such as a debt management plan. In Canada, consumer proposals can only be filed with a Licensed Insolvency Trustee. A credit counsellor or debt consultant cannot legally provide consumer proposal services. All they can do is refer you to a trustee to file a Consumer Proposal. You do not need a referral to an LIT and you should never pay fees to an outside consultant to help you prepare any paperwork. All consultations with our office are free.

Since it is a legal procedure under the Bankruptcy & Insolvency Act, a consumer proposal is the only debt relief option other than bankruptcy that provides protection from creditors who might seek to garnish your wages, or start a lawsuit.

A Consumer Proposal has several benefits over other debt relief options:

  • Keep all your assets, including vehicles and your home;
  • Consolidate debts into one, affordable, monthly payment;
  • Freeze interest on your debts;
  • Once it’s been accepted, a Consumer Proposal is legally binding on all your unsecured creditors
  • Avoid bankruptcy;
  • Stop collection calls and garnishments .

As with any repayment program, including a debt management plan, a consumer proposal will impact your credit rating for a short while. A note will appear on your credit report when you file a consumer proposal, and you can expect that accounts included in the proposal will be reported as an “R9” on your bureau.

The bureaus will remove the proposal at the earlier of 3 years from completion or 6 years from the date you filed.

Most clients see an improvement in their credit score shortly after completing the program, even before the proposal is removed. Your credit rating may already be damaged by late or missed payments, or high balances. Even if you have a good credit score, you might find you are not eligible for new loans at a reasonable rate, because you have too much debt already.

Filing a consumer proposal is often the first step to rebuilding your credit. The Proposal eliminates existing unsecured debt, hits “reset” on your credit and allows you to build a clean credit history.

If you need fresh start, we can help. Contact us today for your free consultation.