A consumer proposal is a way to make a deal with your creditors to repay your debts. You agree to repay less than the full amount owing, and your creditors agree to write off the rest of your debt.
What is a Consumer Proposal?
A consumer proposal is a legally binding agreement that you and your consumer proposal administrator negotiate with your creditors.
Here’s a typical example: You owe $50,000 on various debts (credit cards, bank loans, lines of credit, payday loans, and income taxes). You have a job and are able to make some payments, but you can’t afford to repay everything in full, including interest. You contact a consumer proposal administrator to file a consumer proposal. You agree to pay $400 per month for the next four years, or $19,200 in total. Each of your creditors votes on the proposal, and if they accept it you simply pay $400 per month for the next four years. At the end of the proposal your debts are eliminated.
That’s the advantage of a consumer proposal! You make one reasonable monthly payment, and all of your unsecured debts are eliminated.
Would a consumer proposal work for you? Contact a consumer proposal administrator today to arrange a no charge initial consultation.
How Does The Consumer Proposal Process Work?
Since a consumer proposal is a formal agreement between you and your unsecured creditors, you must make an offer that will be acceptable to both parties. A proposal can also only be filed through a licensed Trustee in Bankruptcy who is acting as a Consumer Proposal Administrator. The steps to filing a proposal under the Bankruptcy and Insolvency Act are fairly easy:
- Contact a Trustee to find out if you qualify to file a proposal and to see if that is your best option.
- Determine your payment terms. Your trustee will work with you to review your debts, your budget and your assets to assess why type of settlement you could propose to your creditors.
- Your trustee will then file your debt proposal documents. This provides a stay of proceedings which stops all creditor action pending approval.
- You creditors then have 45 days to vote whether to accept, or reject, your proposal. If the majority of your creditors, defined as 50% +1 of the dollar value of all claims, accept your proposal terms, it is approved. If 25% or more of your creditors reject your proposal a creditors meeting is automatically called to review the proposal. At that meeting you could explain your terms further, offer to pay more or you could allow the proposal to be rejected. They may request additional payment terms or conditions however your trustee will help you negotiate a fair deal.
- Once accepted, there is a 15 day waiting period to obtain court approval of your proposal. Creditors can apply to the court if they are unhappy with the terms during this period although this is very rare.
- Officially, if accepted, your proposal begins 60 days (45 + 15 days) afer you initially filed and your consumer proposal payments will begin according to the terms of your deal.
- Once all your payments are completed, and you have attended two mandatory credit counselling sessions, you will receive your Certificate of Completion and your debts will be discharged (eliminated).
What Debts Can I Include in My Proposal?
A consumer proposal includes your unsecured debts, such as credit cards, bank loans, payday loans, finance company loans, and even income taxes and other Canada Revenue Agency debts. Proposals do not discharge your secured debts (like your house mortgage or car loan).
For more information, please read our articles:
- Why would a creditor accept my proposal?
- How much does a proposal cost? and
- Will My Proposal Affect My Spouse?
For a detailed review of your personal situation, contact a licensed proposal administrator to arrange a free initial consultation.