Consumer Proposal: Overview & Benefits
A Consumer Proposal is appropriate for someone who cannot repay their debts in full, but who has the means to repay a portion of the debt owing. A Proposal is a legally-binding agreement (supported by the the Federal Government’s Bankruptcy Insolvency Act) between you and your creditors, where you agree to pay them a fixed amount of money over a specific time period in full settlement of your debts.
In most cases you will only end up paying back a percentage of what you owe, and the balance of your debt will be discharged once you successfully complete your Consumer Proposal.
Consumer Proposals must be voted on by all unsecured creditors. They have 45 days from the date of filing to do so. Once accepted by the majority of your creditors, all of your unsecured creditors are bound by the terms of the agreement. This is the major difference (and sizeable advantage) when compared to informal debt settlements, where a settlement is negotiated with each creditor individually.
Because a Consumer Proposal in Canada can only be submitted to your creditors by a licensed Bankruptcy Trustee (such as our firm), a debt consolidation firm or credit counselor cannot file a Consumer Proposal.
Debts That Can Be Included In Your Consumer Proposal
All unsecured debts can be included in a Consumer Proposal, including:
- credit cards
- unsecured lines of credit
- overdrafts on checking accounts
- personal loans from family and friends and others
- department store cards
Secured debts, such as mortgages owing on your home and leased or financed vehicles (to cite a few examples) are not part of your Consumer Proposal and must be dealt with directly with the secured creditor.
The Benefits of a Consumer Proposal
Let’s take a quick look at some of the key benefits of filing a Consumer Proposal. As an alternative to Bankruptcy it can provide you with similar debt relief from your creditors without having to opt for Bankruptcy protection, as well as:
- You are able to retain your assets (vehicle, home, investments, pensions, etc.).
- You negotiate to repay only a percentage of what you owe – the rest of the debt gets forgiven at the end of the Proposal (i.e. is discharged).
- Your creditors are restricted from taking any legal action against you once the Consumer Proposal is filed.
- Interest is frozen from the date that you file A Consumer Proposal can be 1-5 years in length. The longer the Proposal period the more you can stretch out your payments, thereby assisting your monthly cash flow to cover expenses for daily living
- Once your Proposal is accepted by a majority of the dollar value of your creditors, it becomes legally binding on ALL of your unsecured creditors.
- No fees. Our firm, as your proposal administrator, is paid from the proceeds of the proposal (i.e. your creditors are paying the cost of filing the proposal)
- Professional accreditation can be retained as you are avoiding filing for Bankruptcy protection(as in the case of an insurance broker, director of a corporation, licensed real estate broker, etc.)
- If you have filed for Bankruptcy protection before, filing a second Bankruptcy could be a very lengthy and costly process – a Consumer Proposal will allow you to avoid a second Bankruptcy.
- If you are considering the sponsorship of a family member through the Canadian immigration process, a Bankruptcy filing could stall that process. A Consumer Proposal would not.
- Potential for less impact on your credit rating than a Bankruptcy (3 years versus 7 years).
A Popular Option To Get Out Of Debt
Recent legislative enhancements to the BIA (including an increase in the threshold for the eligibility of filing a Consumer Proposal, which rose from $75,000 to $250,000 of unsecured debts), have resulted in more Canadians than ever making the decision to choose a Consumer Proposal over a Bankruptcy. For example, the number of Consumer Proposals filed increased by 6.4% in August, 2011 compared with the same month of the previous year (3,775 in 2011 versus 3,547 in 2010).
Getting To The Finish Line…
Once you fulfill the repayment terms of your Consumer Proposal and attend the two mandatory financial counseling sessions, you will receive a compliance certificate. This releases you from any further payment obligations to your unsecured creditors for the remaining balance of your unsecured debts. After three years following the successful completion of your Proposal, your credit rating returns to R1 – a clean financial bill of health that will allow you to apply for new credit without worries.
It’s all about a fresh financial start — without debt. Please contact us so we can discuss your debt relief options with you, and help you arrange a free, no-obligation, confidential consultation at an office close to your home or work.