A consumer proposal was added to the Bankruptcy and Insolvency Act in Canada as a way to allow individual to make an offer to settle their debts with their creditors for less than they owe yet still receive the protection available under the Act.
To qualify to file a consumer proposal you must:
- Be an individual. Corporations cannot file under the consumer proposal provisions,
- Be insolvent. This means you cannot pay your debts as they come due and your debts are larger than your assets,
- Owe less than $250,000 (excluding your house mortgage). If you owe more than $250,000 you can still file a proposal to your creditors it is just called a Division I proposal,
- File a proposal through a Consumer Proposal Administrator, who is also a Licensed Bankruptcy Trustee,
- Not have a current uncompleted consumer proposal outstanding, and
- Have sufficient income to make your payments.
This last point is one more of practicality than law. For a consumer proposal to be accepted by your creditors your proposal terms will usually include monthly payments, although lump sum proposals are not unheard of. You will need to be able to show that you can meet those payments over the term of the proposal, usually between 3 and 5 years. Since your proposal will involve you making payments to deal with your debts, proposals are most successful if you have a job, or a stable source of income.
After filing your creditors will be able to file claims and vote in your proposal based on the value of those claims. If they accept your proposal and it is accepted by the Court, then you begin the process of making your payments and completing the terms of your agreement. If it is rejected, your Consumer Proposal Administrator will work with you to offer additional terms that your creditors may agree to or can help you choose other options including filing bankruptcy.
The consumer proposal administrators on our site have an excellent track record of negotiating successful proposal terms that work for both the debtor and the creditors.
Contact a bankruptcy trustee to find out if you are eligible to file for a consumer proposal and if that is your best option.
What if my debts are over $250,000?
Individuals who owe more than $250,000, even when excluding their mortgage, can still make a proposal to their creditors. Under these circumstances they may qualify to file a Division I Proposal. The impact is largely the same, it is just the procedures that differ. A bankruptcy trustee can help you determine whether you would be eligible to file a consumer or division I proposal.
Can I file a joint consumer proposal with my spouse?
It is not uncommon for two people (a husband and wife for example) to have shared debts. In these circumstances it is possible for both individual to file something called a Joint Consumer Proposal. If they do, their total combined unsecured debts cannot exceed $500,000.
If I am already bankrupt can I file a consumer proposal?
If your financial circumstances change, it is possible to file a consumer proposal while you are bankrupt. You may be eligible for this option if for example your income suddenly increases and you not find yourself qualifying to pay substantial monthly surplus income payments. You may decide you want to lower your monthly payments and can make a proposal to your creditors to pay them less per month over a longer period of time. If this happens, your bankruptcy trustee can work with you do consider what is best for you and acceptable to your creditors.
Find out if filing a consumer proposal is the right option for you. Contact a Consumer Proposal Administrator near you for a free, no-obligation, confidential consultation.