Eliminating Consumer Debt with a Proposal
A consumer proposal may be an option for you if you have consumer debt that you are unable to pay off. Levels of consumer debt in Canada are generally quite high. Recent statistics show that the national debt-to-disposable-income-ratio is 163%. This means that the average Canadian household owes $1.63 for every dollar of disposable income they have. In Ontario, consumer debt is becoming an issue for some. The ratio of debt-to-gross income in Ontario is 127.%. The more consumer debt you have, the more likely you are to get into trouble with debt. If this happens, a consumer proposal could help you get your debt situation under control.
In a consumer proposal, you make an offer to your unsecured creditors where you propose paying your debts in a manner that you can afford. In the majority of cases, proposals involve paying a portion of your debts in monthly payments for a set period of time. These payments are made directly to a bankruptcy trustee, who will act as the proposal administrator. If you are planning on filing a proposal, this needs to be done through a trustee. A credit counsellor, debt management company or financial advisor cannot administer a consumer proposal.
Filing a Consumer Proposal
Most trustees in bankruptcy offer the initial consultation at no charge. During this consultation, they will review your financial situation and provide you with information on all possible options that are available to you that could help you reduce or eliminate your consumer debt. In a proposal, you can only include unsecured debt. This is debt such as credit cards, unsecured lines of credit, personal loans and other such debt. In general, student loans can only be included in a consumer proposal if you have been out of school for more than seven years. A consumer proposal does not include debt such as automobile loans or mortgage debt. If you are having difficulty paying these debts as they become due, then you will need to speak with these lenders individually.
If, after speaking with a trustee, you decide that you would like to proceed with a consumer proposal, then the trustee will determine what a fair offer to your unsecured creditors will be. This offer will then be sent to your creditors, who will have 45 days to decide whether or not they wish to accept the proposal. If the majority of your creditors vote to accept your proposal, then all are bound by its terms.
If the proposal is accepted, it is then your responsibly to make the agreed-upon payments to your trustee. He or she will distribute them to your creditors. All administrative fees are taken from these payments, so you do not need to pay any additional monthly fees.
Duties under a Consumer Proposal
In addition to making your regular payments, there are other duties that you are responsible for under a consumer proposal. They include:
- Attending two financial counselling sessions. In these sessions, you will learn budgeting tips and money management strategies that can help you avoid getting into trouble with consumer debt in the future. You will also learn about ways to improve your credit rating once your proposal is completed.
- You are also required to provide your trustee with up-to-date contact information. If you move, change jobs or change your phone number, you must provide your trustee with accurate updated information.
Most consumer proposals are completed in between one and five years. Once you have made all of your payments and fulfilled your remaining duties, your proposal will be complete and your remaining outstanding consumer debt will be forgiven.
The Choice to File a Consumer Proposal
When it comes to making a choice for your financial future, it’s important to understand the different options that are available to you. Meeting with a licensed trustee in bankruptcy can help you understand the different options and provide you with the information that you need to make an informed decision.
If you are struggling with consumer debt, filing a proposal in Ontario could be an option for you. A trustee will let you know if this is possible and, if you decide to file, he or she will administer the process, ensuring that everything is completed as it should be. Once the proposal is complete, you will be free to begin rebuilding your financial life.