What Is A Consumer Proposal?

Sometimes there are other alternatives to bankruptcy.

The Consumer Proposal

A Consumer Proposal is a formal arrangement between an individual (the debtor) and their creditors to settle outstanding debt obligations.  This is a court approved agreement where one’s creditors have accepted the debtor’s offer as complete satisfaction of their debts.  Once the process has started, Lenders are unable to commence or continue any legal actions.

In most cases, a Consumer Proposal is a payment of a dollar value over time to be divided equally to one’s creditors.  For example, the debtor may agree to pay $300 for 5 years as full satisfaction of their debts.  The amount required differs depending on the debtor’s financial situation, but usually 20-40% of the total debt load is paid in order to fulfill the obligations of the agreement. 

It should be noted, however, that all parties have to agree to the terms of the Proposal, and as such the amount of repayment that is accepted by creditors can vary widely.

What Are the Benefits of a Consumer Proposal?

  • Unlike a Declaration of Bankruptcy, a Consumer Proposal allows you to retain your assets for your own use and enjoyment.
  • Once the creditors have agreed to the Proposal they are unable to ask for more money. This puts an end to collection calls and demands for payment, and paves the way for you to rebuild your financial future.
  • Your Credit Bureau rating will not be as adversely affected as in a bankruptcy scenario. In fact, it is possible to obtain a secured credit card or secured car loan during the course of the Proposal process.
  • The procedure is significantly less complicated than a bankruptcy. Under a Proposal, there are no monthly reporting requirements, whereas those who elect to file for bankruptcy are required to make monthly reports to their Licensed Insolvency Trustee in order to comply with their obligations and obtain a discharge.

How Do I File a Consumer Proposal?

The first step in the process is to review your finances with a Licensed Insolvency Trustee who will assess your situation and discuss all of your alternatives.  Should it be determined that a Consumer Proposal is the best solution for you, the necessary paperwork will be prepared and filed, and any legal action will be immediately stopped. 

A Licensed Insolvency Trustee is the only person authorized to act as the Administrator of a Consumer Proposal, so your initial consultation is key to ensuring you are making the best choices for you and that the appropriate actions are being taken on your behalf.

Am I Eligible to Make a Consumer Proposal?

Any individual who is bankrupt or insolvent and whose debts, excluding a mortgage on the debtor’s principal residence, are not more than $250,000 is eligible to make a Consumer Proposal.

How Long Does it Take to File a Proposal?

Timing depends on a number of factors.  The lengthiest part of the process is gathering the relevant information and arranging an independent evaluation as to the value of a home or property, if required.  Once the application has been completed a Licensed Insolvency Trustee can prepare and file the documents almost immediately.

Do I Need a Lawyer or a Debt Management Company?

Lawyers or Debt Management Companies are not eligible to file Consumer Proposals.  Only a Licensed Insolvency Trustee can file a Consumer Proposal.  Understand the difference between a lawyer and bankruptcy trustee in Canada

Do My Creditors Have to Accept the Terms of My Consumer Proposal?

There are a number of different scenarios that may happen within the Consumer Proposal process.  However, at the end of the day, if the majority of creditors represented by dollar value vote in favour of the Proposal all unsecured creditors are legally bound by the process.  If a creditor doesn’t vote they are legally bound by the creditors that do vote.

What Happens Once I Complete the Payments/Terms of the Consumer Proposal?

Upon completion of the terms of the Consumer Proposal you will receive a Court Order titled Certificate of Full Performance of Proposal discharging the debtor from those debts included within the Proposal. Certain debts are not eligible to be discharged from bankruptcy or a Proposal; more information on these debts can be found HERE.

What Does it Cost to File a Proposal?

  • The Licensed Insolvency Trustee’s fees are governed by the Bankruptcy and Insolvency Act. All funds/payments under your Consumer Proposal are deposited into a Trust Account.  From that Trust account the Trustee may withdraw its fees and costs.  The remaining funds are paid out to the creditors.
  • Currently the Bankruptcy and Insolvency Act allows the Trustee to withdraw from this Trust account $750 plus applicable taxes upon the filing of the Consumer Proposal, another $750 plus taxes once the Proposal is court approved/deemed court approved and 20% of the distribution to the creditors.
  • Typically, if the Trustee believes the Proposal would be successful, all that is required is your first month payment when you sign the documents.

What if My Debt is Greater Than $250,000?

If your debt is greater than $250,000, don’t worry, you can still offer a Proposal to your creditors.  There are solutions available to address your individual situation.  Please contact our office to discuss your options in greater detail.

Client Consumer Proposal Success Stories

READ MORE: Dale’s Success Story

Dale is 58 years old and divorced. For over 15 years, Dale had owned and operated a business. Over the previous two years, Dale had seen a significant slowdown in his business and was unable to draw any income for himself. He relied on personal credit to pay his personal expenses.

Dale approached D. Thode & Associates Inc., at first assuming that personal bankruptcy was his only option in dealing with the enormous debt load that had resulted from personal guarantees on his business debt and from personal credit cards. His debt exceeded $300,000. At that time, Dale was unemployed and was being supported by friends and family.

At the meeting, Dale found out that filing a Proposal to offer a settlement to his creditors was an option and he was able to secure funding of $30,000 from family friend to settle this debt.

Dale’s creditors and the court approved the Proposal. He was able to start fresh just over two months after filing his Proposal.

READ MORE: Karen’s Success Story

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