Consumer Proposal Explained

If you’re in the situation of being unable to pay your debts, there is a possible way to settle your financial matters without having to file bankruptcy. Under the Bankruptcy and Insolvency Act, you can instead file a Consumer Proposal in Ontario. Your creditors ultimately have a vote in whether or not you are able to settle your debts with a Consumer Proposal, but you won’t know how they vote until you take the necessary steps to find out.

How Does a Debtor Qualify for a Consumer Proposal?

If you meet certain criteria, you may be able to file a Consumer Proposal as a strategy to handle your debt problem. To qualify:

  • You must owe between $1,000 and $250,000 (not including your mortgage) and
  • You must be unable to pay your debts in full.

Basic Steps in a Consumer Proposal

There are certain details you need to be aware of, but it can be encouraging to see that there are merely a few steps involved with making an agreement with creditors as you pursue a Consumer Proposal. Further good news is that the first step involves obtaining a trustee, who takes charge of the process. Here are the basic consumer proposal steps:

  1. Contact a trustee who is approved to handle Consumer Proposals.
  2. Determine a payment plan that works for you.
  3. A proposal is filed by your trustee.
  4. Creditors vote on whether to amend, accept, or reject the proposal.
  5. Once agreed upon by the requisite percentage of creditors, make payments.
  6. Attend credit counseling sessions.
  7. Obtain your Certificate of Full Performance and begin the process of rebuilding your credit.

First Meet with a Licensed Trustee

As a debtor seeking to file a Consumer Proposal, the first step is to meet with a Licensed Insolvency Trustee (LIT). The LIT prepares the forms you must sign, files the proposal to creditors with the government, and handles all communications with the creditors.

What does it Cost to File a Consumer Proposal?

The cost of filing a Consumer Proposal varies, and it is absorbed in the monthly payments you agree to. If, for instance, you pay $400 monthly toward your debts, the filing cost is part of that amount, along with money paid to your various creditors.

What if Creditors Won’t Agree to a Consumer Proposal?

Creditors are not obligated to agree to a Consumer Proposal, but it is often considered to be their best option. Creditors have 45 days to consider whether they will accept or reject a Consumer Proposal. Every creditor gets one vote for every outstanding dollar owed. Once they all vote, if more than half agree to the proposal, it is accepted. If 25% of the creditors request a meeting or if more than half reject the proposal, the trustee will attempt to negotiate alternate terms. Creditors may agree if the monthly payments are increased, for instance, by $50 or $100 monthly. Because they recognize that bankruptcy is probably the alternative, most creditors are encouraged to accept any reasonable offers.

It’s possible that your overall debt load could be significantly reduced if you file and agree to a Consumer Proposal. Once you have completed all agreed-to payments, you are relieved of all outstanding amounts on the debts included in the proposal.

Is a Consumer Proposal the right debt solution for your debt problems? If so, contact a Licensed Insolvency Trustee today.