How A Consumer Proposal Works

 Is a consumer proposal a good idea?

You’re probably reading this because you’ve typed in the phrase “consumer proposal Ontario” in Google’s search engine.

You may considered a number of options to become debt free, such as a debt consolidation loan or credit counselling. You may have even considered filing for personal bankruptcy.

A debt consolidation loan may seem like a good idea. However, you may not qualify for a loan if you have a low credit score.

If a loan isn’t possible, you can consult with an accredited credit counsellor. The counsellor will put you on a Debt Management Plan (DMP).

A DMP will allow you to pay off your debts over a longer period of time – usually 60 months. The counselor may also be able to negotiate a reduction in the interest rate. Despite all these positives, a DMP will have a negative impact on your credit. And if you’re unable to pay a DMP in 60 months, this won’t be a viable solution for you.

Filing for bankruptcy also has some major shortcomings:

• • Upon filing bankruptcy, a record of your bankruptcy will stay on your credit report for 7 years.
  • With certain exceptions, your assets become the property of the bankruptcy estate. This becomes a particularly important issue if you own a home with substantial equity.
  • Your monthly income during the course of your bankruptcy will be monitored by a Licensed Insolvency Trustee. If your income exceeds a certain threshold, you may be required to repay a portion of your debt. This is the concept of surplus income
  • Although attitudes are changing, there is still a stigma attached to the concept of filing for personal bankruptcy.

Given the above points, it would be prudent to consider another alternative to deal with your debts. The best alternative is called a “consumer proposal” to creditors.

What is a consumer proposal?

A consumer proposal is a formal repayment plan governed by the Bankruptcy and Insolvency Act. Assuming your debts do not exceed $250,000 (this threshold excludes debts secured by a residential property).

The advantages of filing for a consumer proposal

• A bankruptcy stays on your credit report for 7 years after you’ve been discharged. On the other hand, a proposal will stay on your credit report for only 3 years after you’ve completed it.
• Unlike a bankruptcy, a proposal will not affect your assets
• A Trustee will not monitor your income – a proposal that is approved by your creditors is a full and final settlement.

What are the steps in filing a consumer proposal?

How much does a consumer proposal cost?

There are 2 components to the cost of a proposal:

1. A filing fee of $104.03 that is paid to the Office of the Superintendent of Bankruptcy
2. The settlement that you will pay to your creditors over a maximum period of 60 months. Your Licensed Insolvency Trustee will calculate how much you can afford to pay and what your creditors will be willing to accept as a settlement. The Trustee’s calculation will be based on the following factors:

• • Your income and your contribution to the income of your household
  • Your cashflow
  • The amount of debt you owe
  • Your assets
  • The number of dependents you have
  • Whether you’ve previously been bankrupt

Who can file a consumer proposal?

• You can file a proposal if you owe at least $1,000 and you’re unable to pay your debts as they become due.
• Once the Trustee confirms that you qualify, he’ll work with you in drafting a consumer proposal to your creditors.

What does a consumer proposal look like?

• A consumer proposal is a no more than two pages in length which offers a settlement of your unsecured debt. Secured debt is unaffected by a proposal, so your car loan and mortgage would be paid in the normal course.
• The settlement is usually paid in monthly installment payments of up to 60 months. However, payments can also be made on a quarterly, semi-annual, or annual basis. You can even offer a proposal with one lump sum payment as a full and final settlement. The most appropriate payment method suggested by the Trustee will depend on the particulars of your situation.

How to file a consumer proposal

• An electronic copy of the proposal is filed with the Office of the Superintendent of Bankruptcy.
• Upon filing the proposal with the OSB, your creditors are legally stopped from taking any action against you. This is called a “stay of proceedings”.

How a consumer proposal is approved by your creditors

• The proposal is sent to your creditors for their review. A document called a voting letter, which allows a creditor to indicate its vote, is also sent. Creditors are required to file a proof of claim and voting letter to vote on the  proposal. They must do this within 45 days.
• At the end of the 45-day period after the proposal was filed with the OSB, the Trustee will compile and review the voting letters received. There are 3 possible scenarios:

Deemed Approval by Creditors

• • If no voting letters were received, the creditors are “deemed” to have accepted the proposal.
  • If those creditors voting “no” comprise less than 25% of the value of claims filed, the creditors are deemed to have accepted the consumer proposal.

Approval at Meeting of Creditors

If those creditors voting “no” comprise more than 25 percent of the value of claims filed, the Trustee is required to hold a meeting of creditors. Creditors will usually vote “no” because they want more money. Therefore, a meeting of creditors would be held to discuss what the debtor would have to offer in a consumer proposal before it would be accepted by the dissenting creditor(s).

Deemed Court Approval

Once your creditors have accepted your proposal, there is a 15-day waiting period that allows any interested parties (e.g., creditors, the Trustee, or the OSB) to request that the Bankruptcy Court review the . Once that 15-day period expires, the is deemed to be accepted by court.

Proposal Not Approved

If your proposal is not approved by the creditors and the court, you’d essentially in the same position he was prior to filing – at the mercy of your creditors. In that event, you may want to consider filing for bankruptcy.

Consumer Proposal Process In 5 Steps – Infographic

Here is a visual summary of the consumer proposal process. If you share it, please link back to our website at https://startingovertoronto.com/consumer-proposal/.

Our Promise To You