Consumer Proposal Laws in Ontario and the Bankruptcy and Insolvency Act of Canada

Most of us go through life not knowing much about Bankruptcy or what a Consumer Proposal is. But when things start to fall apart and you can’t manage your debt any more, you should know that there is a way forward.

Both Bankruptcies and Consumer Proposals are regulated by the Bankruptcy and Insolvency Act, which outlines the roles and responsibilities of the borrower, the creditor, and the Licensed Insolvency Trustee (LIT). Provincial laws apply in both cases as well. If you file in Ontario, your Consumer Proposal will be subject to the federal regulations outlined in the BIA and the Consumer Proposal laws in Ontario.

Consumer Proposal vs. Bankruptcy – What’s the Difference?

Filing a Consumer Proposal or filing for Bankruptcy are two options to deal with a crushing debt load. While they’re not the same, they do have similarities. So first, we’ll review what they have in common and then look at their differences.

The similarities

Since there is no Consumer Proposal Act, the Bankruptcy and Insolvency Act of Canada (BIA) sets the rules for Bankruptcies and Consumer Proposals regardless of where you live in Canada. Some additional laws may apply to each province. Filing a Consumer Proposal in Ontario, for example, means your Consumer Proposal would be subject to the BIA  and Consumer Proposal laws in Ontario.

Both options provide immediate debt relief. They each provide a way to deal with debts you cannot pay. Filing a proposal stops collection calls and court proceedings.

The law also allows creditors to seek a remedy if you fail to comply with the terms of your Consumer Proposal or personal Bankruptcy. Additionally, the BIA outlines the penalties for those who file fraudulently.

A Licensed Insolvency Trustee (LIT) must file for Bankruptcy or file the Consumer Proposal for you. The Bankruptcy and Insolvency Act outlines the rules your LIT has to follow when acting on your behalf. The LIT is the administrator of the Bankruptcy or Consumer Proposal.

The differences between Bankruptcy and a Consumer Proposal

Knowing the differences between the two can help you make an informed decision when you meet with your LIT. Making the right choice will depend on what you want to accomplish in the long run.

Bankruptcy

If you file for Bankruptcy, the following will apply:

• You owe at least $1,000, but your debt has no maximum limit.
• Your Bankruptcy is usually discharged between 9-36 months of making payments.
• You’ll need to submit your expenses and income monthly to your LIT.
• Your payments can change if your income increases.
• Your creditors may be able to seize some of your assets to pay your debts.
• Your tax return can go to your creditors.
• A first time Bankruptcy stays on your credit report for six to seven years after you have been discharged.
• Businesses file for Bankruptcy, and individuals file for personal Bankruptcy.

Consumer Proposal

A Consumer Proposal allows you to settle your debts for less than you owe. In some cases, you only pay pennies on the dollar. Once you’ve made all your payments, creditors will write off the remaining amount owed. When you file a Consumer Proposal in Ontario:

• Your debt will be between $1,000 to a maximum of $250,000.
• You must be insolvent.
• You’ll have up to five years to pay it off.
• It can cost more than filing for Bankruptcy.
• Your tax returns will be yours to keep.
• Assets do not vest in the LIT.
• You don’t need to report income or expenses to your LIT.
• You can pay off your Consumer Proposal early.
• It will stay on your credit report for three years after completion.
• Only individuals can file a Consumer Proposal.

How to File a Consumer Proposal

You might be insolvent if you can’t pay your debts as they come due. If you’re in this situation, options are available to help you escape your debt burden. A Consumer Proposal can be a way to find debt relief. So how does the process work?

Consumer Proposal Laws in Ontario

The Bankruptcy and Insolvency Act (BIA) details the process you need to follow for a legal Consumer Proposal. The BIA is very specific regarding the role and responsibilities of the debtor, creditors, and LITs.

Before filing a Consumer Proposal, your first step is to contact a Licensed Insolvency Trustee. The LIT will review your situation and offer possible solutions. The Bankruptcy and Insolvency Act requires your LIT to act in your best interests, so they will recommend a Consumer Proposal if they believe that’s the best option for you.

If you file a Consumer Proposal, you’ll complete an application. Then, your LIT will prepare the necessary documents, which you will sign.

Once signed, your LIT will file the Consumer Proposal with your creditors and the Office of the Superintendent of Bankruptcy (OSB). After your LIT files the documents, a Stay of Proceedings is enacted so your creditors cannot continue with legal action, collection activity, or garnishing your wages. Having a Stay of Proceedings in place can reduce stress and give you enormous relief.

Your creditors have up to 45 days to decide whether to reject or accept your proposal. If they reject your proposal, a meeting will be held with your creditors to negotiate terms the creditors will accept.

If your proposal is accepted, you’ll make payments to your Trustee. Your Trustee will forward the payments to your creditors. Your payment will include all costs associated with your Consumer Proposal, including the fee for the LIT. As a result, the payments are significantly lower than the payments you would have made before the Consumer Proposal came into effect.

Part of the Consumer Proposal laws in Ontario and the rest of Canada requires you to complete two counselling sessions with your LIT. These sessions cover money management, credit, and debt issues and point out possible warning signs of financial difficulty. Your LIT can also refer you to professionals who can assist with other issues that may have hurt your finances, such as addiction counsellors.

Once you complete all the steps, including making the payments, you’ll be issued a Certificate of Full Performance. The Consumer Proposal will stay on your credit report for three years after you have completed it.  After three years have passed, you can check your credit report to make sure your Consumer Proposal has been removed.

Is a Consumer Proposal the Right Solution for you?

Help is available. Our Licensed Insolvency Trustee, John Adamson will discuss all the options available to you. From there, you can decide how you want to proceed.

If you’re ready to eliminate your crushing debt and build your financial future, please contact Adamson and Associates for a free initial consultation at 519-310-JOHN (5646).