A consumer proposal is a legal, regulated process. It allows you to settle a portion of your debt based on your ability to pay. In most cases, this amount is less than what you owe. Creditors often accept as little as 20% of the total unsecured debt.
Secured debts, like car loans or mortgages, are not included in a consumer proposal. However, reducing payments to other creditors can make it easier to afford these secured debts.
The process is governed by the Bankruptcy and Insolvency Act.
A Licensed Insolvency Trustee (LIT) is required to assist in filing and administering the proposal. A consumer proposal can only be filed if your debt is less than $250,000 (excluding a mortgage on your principal residence). It must be completed within 5 years.
When a proposal is filed, an immediate stay of proceedings occurs.
Unsecured creditors cannot take further action to collect the debt. Any existing legal actions against you must stop.
Wage garnishments and bank account freezes are common legal actions. These actions will be stopped by the stay of proceedings. The trustee will inform all parties involved: creditors, the Court, and, if applicable, your employer.
Creditors will be notified of the proposal. They will have 45 days to vote on it.
A consumer proposal must be approved by the majority of creditors. Votes are counted by the dollar value of the debt owed to them. One creditor voting against the proposal will not stop its approval. This is unless the creditor is owed more than 50% of the total debt. Some negotiation may occur if enough creditors vote against it. However, most consumer proposals are ultimately approved.
Payments under the terms of the proposal will take place – usually monthly payments – and once the payments are completed, a certificate of completion is issued by the trustee. Completing the proposal, not filing the proposal, is what releases you from your debt.
Almost all unsecured debt is released under a consumer proposal, though there are occasional exceptions – your trustee will discuss any that apply to you before the proposal is signed and filed.
You are able to continue to sell or buy any personal asset you require during the proposal.
Aside from the payments, you will be required to attend two financial counselling sessions. These sessions are set up to assist with budgeting questions, as well as covering credit reports and rebuilding your credit. These must be done before a certificate of completion can be issued.
Other positive notations, such as maintaining your car loan or mortgage payments, will help to counteract this to some extent.
The proposal will remain on your credit report for a period of three years after being completed or six years after filing it, whichever is sooner.
They will be fully responsible for the amount left owing, minus what the creditor receives from the proposal.
A lawyer is not generally required to be part of this process, but if you feel the need for legal assistance, you should seek a lawyer that is familiar with personal insolvency law.
