Most of us go through life not knowing much about Bankruptcy or what a Consumer…
If a mountain of personal debt is causing you daily stress, you should know that there are debt relief options available. Before you decide Bankruptcy is your only path forward, speak to a Licensed Insolvency Trustee (LIT) to see if you are eligible for a Consumer Proposal. A Consumer Proposal provides protection from your creditors while also allowing you to hold on to more of your assets than if you file for Bankruptcy.
Consumer Proposal Definition
A Consumer Proposal, also known as a Consumer Debt Proposal, is a formal and legally binding process administered by a Licensed Insolvency Trustee. In a Proposal, you work with your LIT to develop an offer (proposal) to pay your creditors a portion of the amount you owe them, extend the amount of time you have to pay off your debt, or both. The maximum time you can take to pay off your Proposal is five years.
Am I Eligible For a Consumer Proposal?
Only individuals can file for Consumer Proposals. Your corporation is not eligible. If your debts do not exceed $250,000 (not including mortgage debt for your primary residence), you may qualify for a Consumer Proposal.
Other eligibility requirements include
- Insolvency. You are unable to pay your debts when they are due.
- Income. You can prove you have a stable income that will allow you to make your proposal payments.
- No open proposals. You can not have another active Consumer Proposal. Any previous filing must be discharged (forgiven) before you are eligible to file again.
A LIT can work with you to confirm if you are eligible for a proposal and if it is the best option for your financial situation.
How Does a Consumer Proposal Work?
As soon as your LIT files your Proposal with the Office of Superintendent of Bankruptcy (OSB), you can stop making payments to your unsecured creditors. Examples of unsecured creditors include most credit cards, personal loans, payday loans, and utility companies.
If you were experiencing wage garnishment or your creditors filed a lawsuit against you, these actions will also stop.
Your LIT will submit your Proposal to your creditors, who have 45 days to accept or reject it.
What happens if my Consumer Proposal is accepted?
If your Proposal is accepted, you can pay either a lump sum amount or make periodic payments to your LIT. As long as you continue to pay your secured creditors, you may be able to retain your assets, including your house and car.
As part of the process, you will also have to attend two financial counselling sessions. The purpose of these sessions is to help you learn how to manage your finances so you can avoid going into debt again in the future.
What happens if my Consumer Proposal is not accepted?
If your Proposal is rejected, you have a few options. You can make changes to your Proposal and then resubmit. For instance, you might offer to increase the payments to your creditors. You can also speak to your LIT about other debt management and debt relief options or, you can declare Bankruptcy.
While Consumer Proposals are rejected in some cases, most creditors understand you are filing a Proposal because you can’t afford to pay them back in full. Creditors are likely to consider the Consumer Proposal because it allows them to recoup a portion of their money which is typically better than what they would receive if you decide to file for Bankruptcy.
How Can I Fulfill the Consumer Proposal Terms?
Once your Proposal is accepted, you are expected to start making payments. When it comes to how you fulfill the terms of your Consumer Proposal, you have a few different options.
Lump sum payments
A lump sum payment is when a third party steps in to provide money on your behalf. This is often a family member or friend who is willing to give or lend you money so you can pay off the amount agreed on with your creditors.
Periodic payments are monthly fixed payments that you make to your LIT who then distributes them to your creditors. You know exactly how much you have to pay each month, and you don’t have to pay interest.
Stepped payments allow you to increase or decrease your monthly payment amount based on your income. If you expect your income to grow, you can start with lower payments and increase them over time. This is known as a step-up payment.
If you anticipate your income will go down over time, you can plan to start with higher payments and have them decrease over time. This is known as a step-down payment.
What if I Fail to Meet The Conditions of my Proposal?
If you meet the conditions of your Proposal, you will be legally released from the debts included. Should you fail to meet the conditions (default on your payments for more than three months), your Proposal will be annulled (cancelled).
If your Proposal is annulled, you go right back to the financial position you were in before you filed. You owe all of the money back to your creditors, and your creditors can assume collection phone calls and wage garnishment. You also don’t get any of the money you paid into the Consumer Proposal back.
How Will a Consumer Proposal Affect my Credit Score?
A Consumer Proposal will negatively affect your credit score, making it difficult to borrow money until it is removed from your credit report. However, the damage done by a Proposal is less than if you file for Bankruptcy. A Consumer Proposal is typically removed from your credit report three years after you’ve paid it off or six years after the date it was filed, whichever is sooner.
With Bankruptcy, you can expect it to remain on your credit report for up to seven years after the date you are discharged. If you declare Bankruptcy more than once, it will stay on your credit report for fourteen years.
Is a Consumer Proposal Right For Me?
If you’re not able to pay your debts and you’re unsure how to move forward, reach out to a Licensed Insolvency Trustee. A LIT is the only professional authorized to administer a Consumer Proposal and we can work with you to determine if a Proposal is the right fit.
If you’re ready to put your debt trouble behind you and begin to build a new financial future, reach out to us today. Contact an LIT at Adamson and Associates for a free consultation. You can give us a call at 519-310-JOHN (5646) or reach out online.