The Cost of a Consumer Proposal
A consumer proposal is a legal process where you make a formal offer to your unsecured creditors. In most cases, a consumer proposal sees you pay a portion of what you owe, extend the time available to pay the debt or both. A consumer proposal allows you to get control over your financial situation and eliminate your debt.
The cost of a consumer proposal is regulated by the government. All administrative costs are included in the proposal payments that you make. Therefore, you do not need to make extra payments to your proposal administrator. In the vast majority of cases, there are no added costs associated with a consumer proposal. You simply make the agreed upon payments each month and your trustee will distribute these payments to your creditors.
In short, there is no direct cost to you when you file a consumer proposal other than your monthly proposal payments.
All administration fees are set by the federal government and all fees come out of your proposal payments.
In addition, most insolvency trustees (who also act as proposal administrators) offer a free initial consultation. This means that you can have a trustee review your financial situation and provide you with details on the options available to you at no cost to you. If you are having financial difficulties and are struggling to pay your debts, speaking with a trustee makes sense. Even if you choose not to proceed with consumer proposal or bankruptcy, finding out more information on the available options is a good idea.
Understanding the Consumer Proposal Process
A consumer proposal is a legal process. This means that the steps in the proposal are explained in the Bankruptcy and Insolvency Act of Canada (BIA) and they are regulated by the Office of the Superintendent of Bankruptcy.
A consumer proposal is a formal agreement between you and your unsecured creditors. In this agreement, you offer to repay your creditors on terms that you can afford. Consumer proposals see the debtor pay as low as 30% of what they owe. The remaining outstanding debt is considered forgiven once the proposal is complete.
Only unsecured debts can be included in a consumer proposal. Examples of unsecured debts are credit cards, unsecured lines of credit, department store cards, bank account overdrafts and personal loans. A consumer proposal does not include secured debts such as mortgages and vehicle loans. If you are having difficulty paying these type of loans, you will need to speak with each creditor individually.
A consumer proposal can only be filed with the assistance of a licensed proposal administrator. A proposal administrator is also an insolvency trustee. This is a person who is trained and registered to review financial situations and provide information on the available options. A trustee is licensed by the Office of the Superintendent of Bankruptcy to administer bankruptcy and consumer proposal processes.
A consumer proposal typically sees you make regular monthly payments to your trustee who will then distribute these funds to your creditors. Under a consumer proposal, all communication with your creditors is done through your trustee. Creditors are not able to contact you, take legal action against you to collect their debts or send collection agencies after you. This provides great relief to many people who are struggling with debt as receiving calls from creditors can be incredibly stressful.
If you decide to proceed with a consumer proposal, your trustee will review your financial situation and your debts. He or she will then use this information to determine what a fair offer to your creditors will be. This offer will then be sent to all unsecured creditors. They will then have 45 days to vote on whether or not they choose to accept the proposal. If the majority of your unsecured creditors vote to accept the offer, then all are bound by its terms.
Your main responsibility after your proposal has been accepted is to make your regular payments as outlined by the terms of the proposal. If you miss three payments, your proposal can be annulled and your creditors will be free to take legal action against you for the full amount of your outstanding debt. Therefore, it is very important that you make your proposal payments each month.
A consumer proposal is a popular solution for many people who are struggling with debt. If you are concerned about how much a consumer proposal costs, rest assured that the initial consultation has no cost and that there are no additional charges associated with a proposal. All you need to pay is the agreed upon payments to your creditors.