A consumer proposal is a situation where a person makes an offer to his or her unsecured creditors to pay them less than the total amount owing over a period of time. The rest of your debts are forgiven once you have made all of the agreed payments and fulfilled your duties. When it comes to filing a consumer proposal, this process must be done by a licensed trustee in bankruptcy.
A trustee in bankruptcy is an individual who has been trained and is licensed by the federal government to administer bankruptcy and proposal estates. Some people worry about meeting with a trustee in bankruptcy because they believe that the trustee can only help them file for bankruptcy. This isn’t true. A Licensed Insolvency Trustee can also work with you and assist you in filing a consumer proposal. Most trustees should offer a free consultation, meaning that it won’t cost you anything to have a trustee review your financial situation and inform you of the options that are available to you.
One of these options may be a consumer proposal. There may be other options as well depending on your particular financial situation.
Eligibility to File Consumer Proposals
Only individuals may file proposals. This option is not available to businesses. You must also be considered “insolvent.” An insolvent person is someone who is unable to pay their debts as they become due. In addition, your outstanding debt must be less than $250,000, excluding the mortgage on your principle residence. If you have a higher amount of outstanding debt, you will need to discuss your situation with the trustee who will provide you with information on other options that may work for you.
You cannot have any other proposal proceedings still open when you file. In addition, you must have a stable source of income in order to be able to make the monthly proposal payments. Your trustee will review all of your finances and your income situation and let you know if filing a consumer proposal is a choice for you.
How to File a Consumer Proposal
Once your trustee reviews your financial situation and once you have made the decision to go ahead with a proposal, the trustee will determine what a fair offer to your unsecured creditors will be. This offer is based upon your unique financial situation. The trustee will then assist you in filing your proposal with the Office of the Superintendent of Bankruptcy.
Your unsecured creditors will then have 45 days to decide whether or not they will accept your proposal. If the majority of your creditors decide to accept, then all unsecured creditors will be bound by the terms of the proposal. Your trustee will be responsible for all communication with your creditors and all wage garnishments and legal action against you will stop. Creditors will not be able to call you and collection agencies must stop calling as well. This is part of the legal protection that comes with a consumer proposal.
It is then your responsibility to make the agreed upon payments. It is important that you make all of your payments on time. If you miss a total of three payments, your proposal can be annulled.
As a part of the consumer proposal process, you will also be required to attend two financial counselling sessions that are designed to help you manage your financial life.
Consumer Proposal vs Debt Settlement
Many people who are thinking about filing a consumer proposal also think about the option of debt settlement. One of the major differences between these two options is that, with debt settlement, you or the company you are working with will need to contact each creditor individually and negotiate. This means that some creditors could agree to your offer while others may not.
In addition, you do not receive the same legal protections with debt settlement as you do with a consumer proposal. You will need to negotiate the end to legal action and wage garnishment with each creditor individually. Also, debt settlement companies have no legal ability to stop collection calls from agencies.
After Consumer Proposal
Once all of your proposal payments have been made and you have fulfilled all of your required duties, the remaining outstanding debt will be discharged. The trustee will confirm that you have completed your duties and you will receive a Certificate of Full Performance indicating that your proposal is complete. You will then be free to start rebuilding your financial life. This chance to eliminate a portion of your debts and pay your creditors a partial amount in monthly payments is a main reason that many people choose filing a consumer proposal if it is an option that is available to them.