Deciding to File a Consumer Proposal
A consumer proposal is a legal process that can help you reduce your debt. In Canada, consumer proposals must be filed through a licensed insolvency trustee . For this reason, many people confuse the details of a consumer proposal with the bankruptcy process. While a bankruptcy is also a legal process, it is different from a consumer proposal in several ways.
A consumer proposal is a process through which you make an offer to your creditors. In most cases, this offer will be to repay a portion of your debt in monthly payments over a specific period of time. The remaining outstanding debt will be eliminated once you have completed the proposal. In effect, this means that you can reduce the amount of debt that you owe by filing a consumer proposal.
When it comes to deciding whether or not it is a good idea for you to file a consumer proposal, you’ll want to keep many factors in mind. The first thing to remember is that your individual situation will differ from just about everyone else’s as your financial situation will be different. This means that advice that applies to one person will not necessarily apply to anyone else.
It’s also important to know exactly what a consumer proposal entails before you decide whether or not this option is the one you would like to proceed with.
What is a Consumer Proposal?
As mentioned, in a consumer proposal, you make an offer to your creditors. This is done through a licensed insolvency trustee. If you decide that you would like to proceed with a proposal, your trustee will review your financial situation and determine what a fair offer to your creditors will be. This offer will then be sent to all of your unsecured creditors. It must be sent to all of them. You cannot exclude any.
Unsecured debt is debt such as credit card debt or a personal loan. A consumer proposal cannot include mortgages, automobile loans or court-ordered debt such as alimony or child support.
Once your consumer proposal is submitted to your creditors, they will have 45 days to decide if they will accept the proposal. If the majority of your creditors vote to accept it, then all are bound by its terms. A majority is determined by the amount of debt that is owed. For example, if you owe $10,000 in debt, creditors who are owed a combined total of $5,001 or more are needed for a majority.
If your proposal is accepted, your main responsibility is to make the agreed-upon payments. If your proposal is not accepted, you are able to revise it and resubmit it.
When it comes to completing your proposal, you are allowed to repay it more quickly than stated in the terms of the proposal, if this is possible for you. You can even pay it off in one lump sum. There is no penalty for paying off a consumer proposal early.
When you file a successful consumer proposal, you receive legal protection from your unsecured creditors. They are not able to contact you directly and any legal action that your unsecured creditors have taken out against you to collect their debts will stop.
Is a Consumer Proposal Right for you?
If you are having difficulty repaying your debts, speaking with a licensed insolvency trustee can be helpful for you. A trustee can review your financial situation and provide you with information on the options that are available to you. A trustee can legally administer both bankruptcies and consumer proposals. However, this does not mean that these are the only options that will be presented to you. Licensed Insolvency Trustee are bound by a strict code of ethics and they are required to provide information on all options, not just those that they administer.
If you are trying to determine if filing a consumer proposal makes sense for you, speaking with a trustee is a good place to start. A trustee can give you all of the information you need to make an informed decision. However, the decision is always yours to make. A trustee will not pressure you into choosing one option over another.
If filing a consumer proposal is an option for you, your trustee will let you know so that you can consider this option.