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Consumer Proposals

What is a Consumer Proposal?

A Consumer Proposal is an offer made to creditors to pay a percentage of what you owe over a specific period of time, not exceeding 60 months, however, your offer can be paid off at any time. Although there may be organizations claiming they can help you with a proposal, please note, a Consumer Proposal can only be filed by a Licensed Insolvency Trustee (LIT).  

After a Consumer Proposal is filed, your creditors will vote on the offer to repay a percentage of what was owed. Your creditors can accept, reject, or counter the offer you have made. Generally, a Consumer Proposal will be deemed accepted by all unsecured creditors provided a majority of creditors (by dollars owed) have voted to accept the offer. Once an offer has been accepted, your proposal will legally bind all unsecured creditors; including the creditors who might have voted against your proposal offer or failed to vote at all within a specified time frame.  

Who can file a Consumer Proposal?

A Consumer Proposal is a great option for individuals whose current level of debt is unmanageable, however, they have the ability to repay a portion of their debt. Total debt, not including a mortgage on a principal residence, must not exceed $250,000.00.

A joint Consumer Proposal can be filed in situations where the individuals filing the joint proposal share a majority of the combined debt.

Potential Consumer Proposal payment terms:

A Consumer Proposal cannot offer payments exceeding a 60-month period, however, the final offer accepted by creditors can be paid off at any time the funds become available. Every financial situation is unique and as such, a potential offer to creditors can be formalized using one or a combination of the following methods:

  • Fixed weekly/bi-weekly/semi-monthly/monthly payments – to coincide with your payroll frequency
  • Variable payments – for those whose income fluctuates throughout the year; payments would be offered according to those fluctuations. For example, seasonal workers would benefit from a proposal that offers higher payments during “work” months and lower payments during the off-season.
  • Increasing payments over time – for those who are certain their income will increase over time. For example, an individual who is certain of a work promotion from the onset of their proposal filing.
  • Decreasing payments over time – for those who are certain their income will decrease over time. For example, an individual who will retire during their proposal and expect a reduced income as a result.
  • Lump sum payments – a proposal offer may consist of one or more lump sum payments. For example, an individual might utilize the help of family and/or friends to make a lump sum offer to creditors on their behalf if they lack sufficient resources to fund the offer themselves.

Payments from the sale of an asset – a proposal offer may be funded by offering all or a portion of the proceeds from the sale of an asset such as a house, land, or an investment.

Consumer Proposal Steps:

➔ Step 1: Initial assessment determines the filing of a proposal might be the best course of action.

➔ Step 2: Discuss, draft and sign proposal terms, offer, and related documents to send to creditors.

➔ Step 3: Officially file the proposal & related documents with the regulator and creditors. 

After a Consumer Proposal has been officially filed, creditors will be required to cease collection activity/harassment and will have 45 days from the date of filing to submit their vote on the proposal. Every unsecured creditor receives 1 vote per $1.00 owed. A majority of creditors must vote to approve the proposal for it to be accepted. If a majority of creditors do not approve the proposal offer, in most cases a counter offer will be submitted for consideration. After an agreement has been reached with a majority of unsecured creditors, all unsecured creditors will be bound to the agreement.

➔ Step 4: After acceptance, payments, as offered in the proposal, will commence until completion.

➔ Step 5: Attend two counselling sessions focusing on budgeting, setting goals, & managing credit.

➔ Step 6: Certificate of Full Performance issued after all payments and counselling completed.

After a certificate of full performance has been issued, creditors are notified the proposal terms have been successfully completed and the regulator notifies both Equifax and TransUnion of successful proposal completion. At this point, creditors who were part of the proposal would be required to write off the balance of what is owed after having received proceeds from the proposal payments as they would be legally barred from any further efforts to collect after a Certificate of Full Performance has been issued.

What happens to my house or my financed/leased vehicle if I file a Consumer Proposal?

Most people have two types of debt – secured and unsecured debt. Secured debt refers to debt specifically attached to an asset. For example, a mortgage against a house or a loan/lease obligation against a vehicle. Unsecured debt is generally any other debt not specifically attached to an asset. For example, credit-cards, pay-day loans, personal loans or personal tax debt.

If an individual wishes to keep a mortgaged house or a financed/leased vehicle, the proposed terms would specifically state the individual will continue making the required mortgage and/or finance/lease payments in order to keep the subject house or vehicle.

If an individual has a mortgaged house they can no longer afford to keep or sell for what is owing on the mortgage, their proposal could state the house will be returned to the mortgage holder and the balance owing after the house is sold forms part of the overall offer being made to unsecured creditors. The same applies in the case of an individual with a financed or leased vehicle they can no longer afford or cannot sell for what is owed on the vehicle. Their proposal could state the vehicle will be returned to the lender and the balance of what is owed on the vehicle after it has been sold by the lender would form part of the overall offer being made to unsecured creditors.

Benefits of Filing a Consumer Proposal vs. Bankruptcy

After the filing and acceptance of a Consumer Proposal offer, you will be able to enjoy the following benefits that would not be applicable to individual filing bankruptcy:

  1. You will know exactly how much must be repaid in order to complete the proposal and obtain a Certificate of Full Performance; this is not always clear in a bankruptcy, especially where a Bankrupt is deemed to have surplus income pursuant to regulator guidelines.
  2. Keep 100% of any future windfalls – this could include bonuses, overtime, or retroactive pay, as well as inheritance, lottery winnings, the future sale of an asset, and/or higher income associated with a new/second job or the start of a business.
  3. File your own personal tax returns and keep any refunds provided there was no CRA debt prior to filing.
  4. Credit Reports – the record of a Consumer Proposal filing is on your credit report for 3 years after the completion of the proposal or 6 years from the date of filing; whichever is earlier. A first-time Bankruptcy is on your Equifax credit report for 6 years after discharge from bankruptcy and reported on your TransUnion credit report for 7 years after discharge. Considering the first-time bankruptcy is typically 9 or 21 months (with surplus income) in duration, the fact an individual filed Bankruptcy for the first time would remain on their credit report for a period of 6 years and 9 months to 7 years and 9 months with Equifax and 7 years and 9 months to 8 years and 9 months with TransUnion. Further note, a second-time or subsequent Bankruptcy filing would remain on a credit report for 14 years from the date of a Bankruptcy discharge.
  5. Continue to act as or become the director of a corporation.
  6. Continue to be bondable.
  7. The filing of a proposal does not require newspaper publication.
  8. Comply with memberships to professional organizations or other career/job concerns where the filing of a Bankruptcy could jeopardize membership, the ability to practice, or advance.

 

 

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