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Consumer Proposal: Ontario Laws & Procedures

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    A consumer proposal is an alternative to bankruptcy and a good option for many people who are struggling with debt payments and financial issues. A consumer proposal is a legal process, so the terms of the process are set by the government and must be followed. If you wish to file a consumer proposal, Ontario and Canadian laws state that it must be done by a licensed trustee in bankruptcy. You may have previously thought that this type of trustee only handled bankruptcy cases, but that isn’t true.

    Speaking to a Licensed Insolvency Trustee is the first step to filing a consumer proposal in Ontario. Most trustees offer a free consultation, so you will be able to sit down with the trustee and have them review your financial situation at no cost to you. The trustee will then provide you with the options that are available to you based on your finances. If you choose to submit a consumer proposal, Ontario has laid out the exact process that needs to be followed in order to do so. As mentioned, only a Licensed Insolvency Trustee can file the proposal, but it isn't a bankruptcy so they are technically called "Administrators". It can’t be done by a debt settlement company, a financial counselor or by you yourself. This is actually good news since the trustee understands Ontario and Canadian law and will ensure that the proposal is filed properly so that it is legally-binding on you and all your unsecured creditors.

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    Filing an Ontario Consumer Proposal

    Consumer Proposal Laws In Ontario Your Licensed Insolvency Trustee will assist you in filing the proposal. The process involved is dictated by the federal government’s Bankruptcy and Insolvency Act. This same act also governs the actions of the Licensed Insolvency Trustee. In general, the process of filing a consumer proposal in Ontario is as follows:

    • After reviewing your financial situation, the trustee determines what a fair offer to your un secured creditors would be. Your trustee will take into account how much you can afford as well as how much your creditors would be likely to get if you were to file for bankruptcy.
    • You will need to give the trustee a complete list of all of your assets and debts as well as details of your income.
    • This offer will not interfere with your mortgage or car payments, so you can continue to keep your home and car.
    • This offer is prepared and submitted to all of your unsecured creditors. They then have 45 days to decide whether or not they would like to accept the terms of the proposal.
    • From the minute your proposal is filed with the government this point on, you receive financial protection from your creditors. They cannot take any legal action against you to collect their debts and any wage garnishments against you will stop.
    • Also, at this point, all communication with your creditors will be done by the trustee. Your creditors are no longer able to contact you directly to discuss your debt.
    • In Ontario, consumer proposals are usually accepted if they are fair. This is because creditors know that they will get significantly less money if you were to go bankrupt instead.
    • Any of your creditors can request a meeting of creditors if they wish, as long as they are owed at least 25% of the total value of the debt. In addition, the Office of the Superintendent of Bankruptcy can also direct the trustee to call a meeting. A meeting of creditors must be held within 21 days after being called. The creditors will vote on your proposal at the meeting.
    • In most Ontario consumer proposal cases, a meeting of creditors is not called and creditors will instead simply vote on whether to accept the proposal.
    • If your proposal is accepted by the majority of your creditors, then all unsecured creditors are bound by its terms even if they did not vote in favour of it. The majority is determined by the total amount of the debt owed. Therefore, if the creditors who are owed 50% plus one of the debt vote in favour, all must accept the terms.
    • After the proposal is accepted, there is a standard 15-day waiting period until the court approves the proposal.
    • Your responsibility for the duration of the proposal term is to make the regular payments as outlined. These payments are set at the same amount each month and are paid directly to the trustee who distributes the proceeds to the creditors.
    • You are also required to attend two financial counselling sessions with a licensed and registered financial counsellor.
    • At the completion of the proposal, if you have successfully made all of your payments, you will receive a certificate of full performance that is signed by your trustee. The balance of your debts are then eliminated
    • Once you receive this certificate, you are back on the road to rebuilding your financial life!

    If you are dealing with debt trouble, a consumer proposal may be an option for you. The consumer proposal process starts by meeting with a Licensed Insolvency Trustee. 

    A Licensed Insolvency Trustee is an individual who has received training, is licensed to provide information on debt relief options, and can administer certain insolvency processes, including consumer proposals.

    Consumer proposal laws in Ontario (and throughout Canada) state that consumer proposals can only be administered by a trustee.

    When you meet with a trustee, they will review your financial situation and let you know what options are available to you. Different options will apply to different people and talking to a trustee can help you understand what is available so you can make the right choice for your financial future.

    What is a Consumer Proposal in Ontario?

    If you are considering a consumer proposal Ontario, it’s important to understand how consumer proposals work. When you file a proposal, the trustee looks at your financial situation and your debts and then prepares an offer to your creditors that is fair to both you and them. The offer is typically for a portion of the outstanding debt, rather than the full amount.

    The proposal is then sent to all of your unsecured creditors. Only unsecured debt can be included in a consumer proposal. Unsecured debts are those that are not backed by an asset. Examples of unsecured debt include credit card debt, lines of credit, personal loans, tax debt, and other such debts.

    Your creditors will then vote on whether they wish to accept the proposal. If those creditors that are owed the majority of the debt choose to accept it, then the proposal is binding for all creditors. For example, if you owe $20,000 in debt and a creditor or collection of creditors that is owed at least $10,000 accept the proposal, then it becomes binding.

    It is then your responsibility to make monthly payments as outlined in the proposal. When all of your payments are made, the remaining outstanding debt is eliminated.

    Many people compare consumer proposal vs. bankruptcy, since these are both insolvency processes administered by a trustee. However, unlike a bankruptcy, you do not lose any assets when you file a consumer proposal and the amount of your monthly payments does not change, even if your income increases.

    There are potential downsides to filing, such as the situation involving consumer proposals and loans. A proposal is noted on your credit report, which can make it more difficult to get a loan in the future. However, since a proposal allows you to pay off your debts without repaying the full amount, filing can still be the right decision, depending on your situation. 

    Consumer Proposals and Ontario Credit Ratings

    As mentioned, the situation involving consumer proposals and loans can be a potential downside to filing a proposal. When it comes to a consumer proposal and credit ratings, it’s important to know that a note will be placed on your credit report when you file a proposal. This will negatively affect your credit rating and will make it more difficult for you to get a loan for at least a short time.

    However, if you are struggling with debt, you may have already damaged your credit rating by borrowing more than you can afford to repay or by missing payments. Filing a consumer proposal in Ontario (or anywhere in Canada) will give you an option to reduce and eliminate these debts. Doing so will put you in a position to rebuild your financial situation in the future. 

    A consumer proposal doesn’t damage your credit forever. This is a common myth. By following good credit habits, you can improve your credit and create a stronger financial life for yourself.

    Consumer Proposals Vs. Bankruptcy in Ontario

    It makes sense to compare consumer proposal vs. bankruptcy, since these are both legal processes that are administered by a Licensed Insolvency Trustee. However, while there are several aspects of the consumer proposal process that are similar to a bankruptcy, there are many key differences as well.

    Similarities between Consumer Proposal and Bankruptcy:

      • One similarity between how consumer proposals work and the bankruptcy process is that both are legal processes. This means they are regulated by the federal Bankruptcy and Insolvency Act. 
      • With both a bankruptcy and a consumer proposal, you receive legal protection from your creditors. They cannot contact you and all communication happens through the trustee. Creditors cannot take collection action against you once you file and any action that is in place (such as wage garnishment, for example) must stop.
      • With both processes, you are required to attend financial counselling sessions to learn about budgeting, money management, and how to use credit responsibly. 
      • Both processes are noted on your credit report, but the length of time they are noted is different.

    Key Differences between Consumer Proposal and Bankruptcy:

      • An important difference between bankruptcy and consumer proposal is that you do not lose any of your assets when you file a proposal. In a bankruptcy, you could lose some of your assets, depending on what you own.
      • When you file for bankruptcy, you are required to provide the trustee with monthly income statements. If you earn more than a level set by the federal government for your family size, you may have to make surplus income payments. Generally speaking, the more you earn, the more your bankruptcy will cost. With a proposal, once it is accepted, the monthly payments do not change, even if your income changes.
      • Another difference is the situation involving bankruptcy, consumer proposal and credit ratings. A bankruptcy is noted on your credit report for six years after you are discharged (if it is your first bankruptcy). A consumer proposal stays noted on your report for three years after it has been completed.

    When it comes to consumer proposal vs. bankruptcy, which is the right option to choose will depend on your unique financial situation. Speaking with a Licensed Insolvency Trustee can help you understand if either of these options are right for you. 

    The Laws That Govern Consumer Proposals in Ontario

    The consumer proposal process is outlined in the federal Bankruptcy and Insolvency Act (BIA). Only Licensed Insolvency Trustees can administer a consumer proposal. Trustees are licensed through the federal Office of the Superintendent of Bankruptcy.

    Consumer proposal laws in Ontario are the same as those throughout Canada. You receive legal protection when you file a proposal. This means your creditors cannot contact you or take any legal action against you to collect the debt. Filing a consumer proposal puts an end to calls from collection agencies, wage garnishments, frozen bank accounts, and more.

    Consumer Proposals in Ontario Vs. Other Provinces

    Whether you file a consumer proposal Ontario or in any region of the country, the process remains the same. It must be administered by a Licensed Insolvency Trustee, you receive legal protection when you file, and your creditors cannot contact you.

    With a bankruptcy, there are differences in each province when it comes to exempt assets. This is not the case with a consumer proposal. You do not lose any assets when you file, so consumer proposal laws in Ontario are the same as those in other provinces

    If you wish to know more about how consumer proposals work or if this process is the right one for you, speaking with a Licensed Insolvency Trustee is a good idea. Most trustees offer a free consultation. 

    How Long Does a Consumer Proposal Stay on Your Credit Report in Ontario?

    When you file a consumer proposal Ontario or in any province, it remains noted on your credit report for three years after it is complete. This can make it harder to get a loan. However, the situation involving consumer proposals and loans is not one that makes it impossible to borrow money in the future. You can improve your credit by following good habits over time. 

    While your credit report is affected by a consumer proposal, the proposal process also helps you reduce your debt. This means that, once the proposal is complete, you will be debt-free and able to start improving your credit. For many people, this situation is preferable to continuing to struggle with debt. If you have a lot of debt, you’re more likely to overextend yourself and even potentially miss payments, which will harm your credit score as well. With a proposal, you at least have a path to eliminating your debt.

    As mentioned, the note regarding the consumer proposal and credit ratings remains in place for three years. After this time, your proposal is no longer noted on your credit report. This means you can start working to improve your credit score. 

    One way to do this is through a secured credit card. A secured credit card is backed by a deposit, so most people can get one regardless of their credit score. Note that a secured credit card is different from a prepaid card. A prepaid card acts more like a gift card than a credit card, so using one does not help improve your credit rating.

    By following good credit habits, you can rebuild your credit score over time. Speaking to a Licensed Insolvency Trustee can help you understand if the process is right for you.