Consumer Proposal – Is it Right for Me?
If you are struggling with your debt, you may have wondered if a consumer proposal would be right for you. What exactly is it? How does it work? Is it true I wouldn’t have to pay back all of my debt? Can I still live in my house? These are questions that may be crossing your mind. Let’s dig in.
What is a Consumer Credit Proposal?
A consumer credit proposal is a legal proceeding that is administered under, and governed by the Bankruptcy and Insolvency Act of Canada. A consumer proposal satisfies your creditors by repaying a portion of your debt back, and in turn your creditors will write off the remainder. Only Licensed Insolvency Trustees (LIT’s) are able to administer consumer proposals. They will negotiate a reduction of your debt and create a debt repayment plan that you, your creditors, and the bankruptcy court agree to. Often, debts can be reduced to pennies on the dollar.
For example, if you have $40,000 in credit card debt and are no longer able to make your minimum payments of $1,200 per month, it may be possible to file a consumer proposal and pay $300 per month over a period of up to 5 years. You would pay no interest moving forward and would end up with one affordable payment every month. At the end of the consumer proposal, your creditors would write off the remaining balance.
Sounds Great! But Wouldn’t I Pay Less if I Filed Bankruptcy?
It may be possible to pay back less to your creditors if you file bankruptcy, but there is a lot to consider when making your decision:
- Assets: A consumer proposal will allow you to keep all of your assets, like your house, car and investments. This is often a very important difference to families who don’t want to risk losing their home.
- Income: Your income is yours when you file a consumer proposal. If your salary goes up, you get a work bonus, a large tax refund, or sell an asset, your money stays in your pocket. During a bankruptcy, you will be required to pay more money if you make more money.
- Credit Rating: A consumer proposal will affect your credit rating much differently than a bankruptcy. A consumer proposal will change your credit rating to an R7, and will stay on your credit bureau for 3 years after completion. A bankruptcy will change your credit rating to an R9 (lowest rating), and stay on your credit bureau for 6 years after completion.
- Payment: When filing a consumer proposal, you will have peace of mind knowing what your monthly payment is, should your income fluctuate. In a bankruptcy, your payment can change if your income changes.
- Tax Refunds: Unlike a bankruptcy, tax refunds are for you to keep, and will not be distributed to your creditors in a consumer proposal.
- Early Pay Off: If you are able to pay down your consumer proposal earlier, you will not incur any penalties, interest, and your credit rating can immediately begin to improve. While bankruptcy payments can be paid down earlier, normally there is no early discharge as a result. Your credit rating will still be affected for 6 years following discharge.
As you can see, a consumer proposal has many advantages over filing bankruptcy in Canada. It is a complex decision to make, but luckily a Licensed Insolvency Trustee can go over the pros and cons of all debt solutions to help you make the right decision for you and your family.
How do I File a Consumer Proposal for Debt in Canada?
To qualify for a consumer proposal for debt in Canada, you must meet the following criteria:
- Your debts must be between $1,000 and $250 000, not including mortgages on your principal residence;
- You must be an individual that resides in or carries on business in Canada;
- You must be insolvent. This means that your debt amount must exceed your asset amount.
A Licensed Insolvency Trustee will meet with you for a free initial consultation. They will review your financial situation and advise you on all of your options to get out of debt. If you feel that a consumer proposal is the best solution for you, you will fill out an application for a proposal. The application will provide the your trustee with all the necessary information to file the proposal on your behalf.
Your LIT will prepare all documentation and file it with the Office of the Superintendent of Bankruptcy (OSB). Documentation will include a Statement of Affairs, which lists all of your assets, debts, and monthly personal expenses to show that you can afford to make your consumer proposal payment. As well, a Trustee’s Report will show your creditors how much money they would get back under a bankruptcy vs consumer proposal scenario. Your consumer proposal will be offering the creditors more money than they would receive if you filed for bankruptcy, which is beneficial to them.
Your creditors will receive copies of the proposal, and will be asked to accept or reject the proposal. In order for a consumer proposal to be approved, creditors having at least 50.1% of the total amount of the debt must accept the proposal. Your creditors will have 45 days to either:
- Accept the proposal as filed;
- Request a creditors meeting to gather more information; or
- Reject the proposal as filed.
Once you have fulfilled all of your obligations under the terms of the proposal, the LIT will provide you with a Certificate of Full Performance, which serves as your discharge. After this, you are completely released of any obligations to the creditors.
How do I find a Consumer Proposal trustee?
Look no further! A consumer proposal trustee is a Licensed Insolvency Trustee (LIT), and at Adamson & Associates they are ready to help you. Our Licensed Insolvency Trustees will assess your situation and help you decide which option is right for you. If you are having financial problems, please call us for a free, confidential appointment to learn about the debt solutions available to you.