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Is your debt overwhelming? Are collection calls getting to you? Are you making interest payments but not payments toward the principal amounts you owe? Are you thinking about filing for bankruptcy? If you are seriously considering bankruptcy, you may want to determine if you qualify for a consumer proposal. Many individuals opt for a consumer proposal and leave default as an option of last resort.
Want to learn more? – The Office of the Superintendent of Bankruptcy in Canada.
A consumer proposal is a legal process administered under the Bankruptcy and Insolvency Act between you and your creditors to resolve your outstanding debt. The result is a negotiated settlement that requires you to pay all or a portion of your unsecured debts over a maximum five-year period. Your agreement with your creditors will depend on your income and the amount you owe.
What is the Purpose?
The purpose of a consumer proposal is to make it easier for you to make the payments you owe by reducing the amount and extending the total time to make payment. The option is a win-win situation for you and your creditors compared to the alternative of personal bankruptcy.
What Can a Consumer Proposal Include?
A consumer proposal can encompass most unsecured debt, which is not backed by collateral. Common types of unsecured debt that may be included in a consumer proposal are:
What Can’t a Consumer Proposal Include?
A few types of unsecured debt are excluded from a consumer proposal (unless a creditor agrees to include it), such as:
A consumer proposal does not include payments on secured debt, such as a mortgage or car loan.
How Would a Consumer Proposal Benefit Me?
Like filing for bankruptcy, you would obtain immediate protection from creditors. You would receive no more telephone calls, collection activities or legal action from your unsecured creditors. During the consumer proposal process, there are no more wage garnishments and/or writs (of seizure and sale).
As the debtor, you can expect to pay less of the total amount you owe in a new payment plan that extends up to five years. Interest typically stops accumulating, and you may receive reduced administrative fees.
A tremendous advantage of a consumer proposal is that you do not risk equity in your home, car, or other assets when preparing a plan where you cooperate with your creditors.
The impact on your credit rating will also be less, with an R7 rating in a consumer proposal instead of a more harmful R9 rating in bankruptcy. Also, an R7 rating will stay on your file for three years after your consumer proposal finishes, while an R9 rating will stay on your file for approximately seven years.
How Would my Creditors Benefit?
A consumer proposal, by design, allows your creditors to obtain a more significant financial benefit than what they would receive through bankruptcy. Your creditors may collect a one-time lump sum payment, more frequent payments than in bankruptcy, and collect total payments than under bankruptcy.
To be eligible for a consumer proposal, you must have:
If you owe more than $250,000, then a Division I Proposal may be available to you.
How Does the Process Work?
With your input, a Licensed Insolvency Trustee prepares a consumer proposal, acting as Proposal Administrator. The Proposal Administrator files your consumer proposal with the Official Receiver and your creditors with your consent. Your creditors then have 45 days to accept or reject the proposal with a voting letter.
A meeting of the creditors is held if it is requested by 25% of the dollar value of your creditors (not 25% of your creditors). If a creditor’s meeting is held, it is to discuss the proposal with you and your Licensed Insolvency Trustee and approve or reject it. The court may also be asked for approval, but this is rare.
If the creditors reject the proposal, you can withdraw it and rewrite it again, or you may file for bankruptcy.
If, after 45 days, a meeting is not called, the proposal is deemed to be accepted. Once accepted, you must begin making agreed payments (monthly or lump sum), and the agreed repayment amount must be completed within a maximum of 5 years.
If the proposal is accepted and you default on those terms, then the proposal may be deemed abandoned by you, and your creditors can pursue legal action.
Contact Fox Miles & Associates to Assess and Explain Your Debt Options
At our firm in Edmonton, a Licensed Insolvency Trustee can answer your questions about your unique debt situation. We can help you with the option of filing a consumer proposal in Edmonton. We can meet with you immediately; our consultation is confidential and free. Call us at 780-444-3939, so we can help. Don’t let debt overwhelm you anymore.
Seeking credit counselling or debt help service is also a good idea. Fox-Miles & Associates Inc. provides credit counselling and debt management solutions to Edmonton, Sherwood Park and Spruce Grove. Contact us today for a free consultation and find out how we can help you.
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