consumer proposal

How Consumer Proposal Works in Canada

If you have ever been in debt and looking for solutions to get your creditors off your back, you will appreciate how Consumer Proposal can come to your aid. Consumer Proposal in Canada comes under the Bankruptcy and Insolvency Act. It is a legally binding debt repayment arrangement made with your creditors through a Licensed Insolvency Trustee, who acts as the Consumer Proposal Administrator.

Unlike bankruptcy, Consumer Proposal implies that your unsecured creditors agree to accept a lesser amount (a percentage of what you owe), or extend the time of your payment, or both, and thereafter eliminate your debts in full satisfaction of their claims, without you surrendering your assets.

What Are the Qualifications to File a Consumer Proposal in Canada?

A Consumer Proposal may be a feasible solution for you, but you must understand that not everyone with a significant amount of consumer debt will qualify for this debt relief option. Therefore you are qualified for a Consumer Proposal, if:

  • You have at least $1000 in unsecured debt, and less than $250,000 (excluding mortgages).
  • You are unable to repay all your creditors in full, with interest.
  • You are unable to get a consolidation loan as a result of your huge debts.
  • You have enough income to settle some of your monthly debt payments.
  • You do not want to file bankruptcy.
  • You have no outstanding proposal process.

Debts You Can Include In a Consumer Proposal

Not all debts are covered under a Consumer Proposal in Canada. Here is a list of unsecured debts you can include:

  • Credit card debt.
  • Income tax debt
  • Unsecured lines of credit
  • Payday loans
  • Personal or individual loans
  • Certain student loans (of over seven years).

Debts That Cannot Be Included In Consumer Proposal

Consumer Proposal cannot eliminate certain secured debts, such as:

  • Car loans
  • Mortgages
  • Alimony obligations
  • Court fines and penalties like parking tickets.
  • Student loans within seven years
  • Debts arising from fraud.

Processes of Consumer Proposal in Canada

  1. Consultation, Assessment and Payment Plan

A consumer proposal is a legal process that must be administered by a licensed insolvent trustee. To begin, you must consult a trustee who will assess your income and assets. With this assessment and other information, your trustee will be able to determine how much you can afford to pay each month to your creditors. This is determined by your total debt and your monthly cash flow.

It is essential that you provide truthful information to the trustee, as this will aid your consumer proposal process.

Thereafter, the trustee will design a manageable monthly payment plan that can be spread over a maximum period of five years (60 months). Alternatively, you can make a lump-sum payment.

  1. Filing, Voting and Approval of Proposal

After studying and agreeing to the proposed plan, you are to sign the documents, after which it will be filed electronically by the trustee, with the government. These documents will also be sent to each of your creditors.

After reviewing your proposal and terms, your creditors can vote yes or no, that is accepting or reject your terms. In addition, they may request for a creditors meeting.

When you file a consumer proposal, it stops most wage garnishment. Also, creditors can no longer contact you for payments, and all the interest on your unsecured debts are stopped from accumulating.

Once your proposal is approved and accepted, it becomes binding on all parties. A consumer proposal will typically allow your creditors to recover a larger percentage of the money you owe them than they would if you were to declare bankruptcy.

  1. Proposal Payments

As long as you make your payments on time, and as agreed, you will be released from your debts. To avoid annulment, ensure that you do not defer up to two payments.

If the annulment happens, your debts will be restored and there will be no protection from creditors. In addition, you are expected to attend at least, two credit counselling sessions to help you start afresh and plan your finances.

Complete Payment and Certificates

At the completion of your payments, you are presented with a Certificate of Full Performance. As a result of this, your unsecured debts are completely eliminated, and your payment completion and date will be transmitted to the credit bureau by the government.

Besides, you will receive from the administrator, a Statement of Receipts and Disbursement, and a notice of taxation of the administrator’s accounts.

From this point, you can begin a fresh start, and start rebuilding your credit score.

Some Consumer Proposal FAQ

How does a consumer proposal affect my credit rating?

Filing a consumer proposal will result in an R7 or R9 credit rating on your listed accounts for about three years. Keep in mind that filing a consumer proposal is a positive step, and the effects on your credit rating can be temporary.

How Long Does A Consumer Proposal Last?

The maximum time limit for a consumer proposal is 60 months/5 years. However, you can make a lump-sum payment and get over it within a short period of time.

Can I Leave Some Creditors Out Of My Proposal?

No. All eligible unsecured debts must be included in the consumer proposal.

Does CRA Accept Consumer Proposal?

Yes. The CRA tax debt is an unsecured debt that you can include in your proposal.

What Happens If I Miss My Proposal Payments?

You are allowed by law to miss not more than two payments. If you fail to meet up with payments for three times, your proposal will be automatically annulled/cancelled. Thereafter, your debts will be restored, creditors will come for their money, and all the previous payments you made during the proposal will be lost.

Can I Rebuild My Credit After A Consumer Proposal?

Yes, that is a smart idea. You can rebuild your credit score by following the steps your proposal administrator gives you during the credit counselling sessions.

What Does A Consumer Proposal Cost?

A consumer proposal is meant to help you get out of debt. There are no extra fees attached. Your proposal administrator is paid out of the amount you agree to pay your creditors.

Final Thought

It is important to speak with your trustee/credit counsellor to ascertain if a consumer proposal is right for you, or alternatively, consider other debt-relief options.

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