What is a Consumer Proposal?

Consumer Proposals explained.

What is a Consumer Proposal?  A consumer proposal is a financial instrument administered by a Licensed Insolvency Trustee (LIT) to structure payments to creditors. It is a legally binding offer to pay creditors a percentage of what you owe, extend the time you must pay or both. A LIT receives your payments and uses that money to pay your creditors.

When asked about the advantages of a Consumer Proposal, Rhonda Fox-Miles stated:

“Consumer Proposal provides a cash settlement solution to your creditors while allowing the individual to retain their assets and reduce the damage to their credit status.

A consumer proposal is an alternative to bankruptcy while offering the creditors a more significant cash settlement while avoiding the stigma of bankruptcy.”

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    In this guide,
    you will learn:

    How do I File for a Consumer Proposal, and How Does it Work?

    Before you can file for a consumer proposal, you need to speak to a Licensed Insolvency Trustee (LIT). The LIT will help you assess your current financial situation and explain what your options are. If a Consumer Proposal makes sense, the LIT will develop a proposal that works for both you and your creditors.

    How Does Consumer Proposal Work?

    1) The LIT will file the proposal with the Office of the Superintendent of Bankruptcy (OSB). When you file, the following happens immediately:

    • All payments to unsecured creditors cease
    • Wage garnishment stops
    • Lawsuits against you pause

    2) The proposal is submitted to your creditors by the LIT. It includes a report on your situation as well as what is causing your financial difficulties.

    3) Your creditors have 45 days to accept or reject your proposal. They can schedule a meeting of creditors to go over the situation and notify you of their decision then.

    What is a Meeting of Creditors?

    This type of meeting lets your creditors decide to accept or refuse your consumer proposal. Each creditor gets votes corresponding with the dollar value of their proven claims. The majority of the dollar value then determines the vote. For example, if you had three creditors.

    1. 4000 dollars of unsecured credit on your car
    2. 10000 dollars of unsecured credit on your credit card
    3. 14500 dollars of unsecured credit on your boat

    Creditors 1 and 2 voted to reject your proposal, while creditor 3 voted to accept it.  Your creditors would accept your proposal in this circumstance because creditor 3 has more votes due to dollar value.

    Your Consumer Proposal is Accepted

    Your requirements:

    Your Consumer Proposal is Rejected

    You can:

    What Happens After the Proposal is Accepted?

    Is a Consumer Proposal Considered a Bankruptcy?

    One of the most common questions Rhonda Fox-Miles gets asked, “Is a consumer proposal considered a bankruptcy?” 

    A consumer proposal is not the same as bankruptcy, although it does affect your credit score detrimentally as bankruptcy does.  

    They are the two most popular debt solutions in Edmonton, but they are not the same.  A consumer proposal is a legally binding settlement between debtors and creditors. Bankruptcy is when you surrender all your assets to your creditors to eliminate your debt.

    Is a consumer proposal worth it?

    Consumer proposals are often are the best debt solution.  They have more to offer than bankruptcy, but the creditors must approve. Consumer proposals allow you to proactively keep your assets and pay lower monthly premiums than a bankruptcy. The short answer is a consumer proposal is often worth it, but it is best to consult an expert.

    Comparing consumer proposal and bankruptcy

    Who Can Claim Bankruptcy or Consumer Proposal? 

    Any resident of Canada can claim bankruptcy if they owe more than $1000 and are insolvent. 

    A consumer proposal requires you owe less than $250, 000 excluding your mortgage. You must repay a portion of your debts, and your creditors must accept the proposal.

    What is the Difference in Cost Between Bankruptcy and Consumer Proposal?

    Your income level sets bankruptcy payments. The more you make, the more you have to pay into the bankruptcy. Surplus income payments are a possibility if you make more than the minimum designated amount.

    Consumer proposal payments are not set.  You negotiate the amount with your creditors. You can set make your payments over a more extended period than a bankruptcy. It allows you to have more flexibility in your repayment as well as adjust the monthly amount.

    How Long Will I Have to Pay into the Bankruptcy or Consumer Proposal?

    First-time bankruptcies have a period of 9 months.  If you make more than the minimum income level, your requirement will be up to 21 months.

    Consumer proposal payments can be up to a maximum of 5 years.  Your Licensed Insolvency Trustee negotiates the timeframe with the proposal.

    What Assets are Affected by Declaring Bankruptcy in Alberta?
    Consumer Proposal?

    In Alberta, when you declare bankruptcy, you will be forced to surrender some assets. There are many things you can keep under Provincial law.  Here is a detailed list of what you can keep.

    When filing a Consumer Proposal, you are not required to surrender anything, and you do not have to lose any assets.

    Credit Impact of Bankruptcy vs Consumer Proposal

    If you declare bankruptcy in Canada, you will receive an R9 credit rating.  It is the word rating possible and will remain on your credit score for 7 to 14 years.  It is a severe adverse credit modifier for an extended period.

    A Consumer Proposal will give you an R7 credit rating for three years after your payments are over or six years after you file.

    Both solutions have a severe effect on your credit score, but the primary reason for choosing between them is the impact on your budget and assets.

    Conclusion

    What is a consumer proposal? It is a financial instrument that can help you right now.

    When choosing between Bankruptcy and Consumer Proposal, it all comes down to which one is right for your particular circumstance.  A Licensed Insolvency Trustee can give you expert Credit Counselling advice and help you chose the best path for you. 

    The first step towards resolving your debt problems is to talk to a professional.  Fox-Miles & Associates have helped thousands of Albertans overcome their debt problems and have the experience to help you too.

    Give us a call at 780-444-3939 or visit us at https://foxmiles.ca/ to book your consultation.

    CASE STUDY #1:

    ESTIMATED RETURN FOR UNSECURED CREDITORS BANKRUPTCY VS. CONSUMER PROPOSAL

    These are our minimum: Bankruptcy $1800, Consumer Proposal $7200.00

    Creditors won’t accept less than $7200.

    A single person comes in to see us.  He has debts that are bothering him; collectors are calling. What’s next?

    A Trustee will assess his situation, his income, his assets, and what stage are the collections.

    A single person earning less than $2243.00 a month take-home pay has no excess income in a bankruptcy.

    If he has no assets (in Alberta, you get to keep $4000 furniture, $4000 personal effects, $5000 equity in a vehicle, $40000 equity in a personal residence and up to $10000 tools required to earn a living. Also pensions (includes LIRAs) RRSPs RESPs and most life insurance policies are exempt.

    When we look at his scenario, he could go bankrupt, first time, no excess (not making more than $2243.00) he could be discharged in 9 months.  He must file monthly statements (budgets) each month, attend two counselling sessions, provide his tax information to the trustee, and he should qualify for an automatic discharge At nine months. Cost $1800.00.

    He could also look at a Consumer Proposal offering his creditors something. In the above scenario a bankruptcy would pay the creditors 0%, and the Consumer Proposal would offer the creditors 32%.

    Two counselling sessions will leave a negative on the credit rating for 3 years once the Consumer Proposal is paid.

    The bankruptcy would leave a negative mark for six years from the time of discharge.

    CASE STUDY #2:
    ESTIMATED RETURN FOR UNSECURED CREDITORS BANKRUPTCY VS. CONSUMER PROPOSAL

    A single person comes in to see us. He has debts that are bothering him; collectors are calling. What’s next?

    A Trustee will assess his situation, income, assets, and what stage the collectors are at.

    A single person earning MORE THAN $2243 a month take-home pay has excess income in a bankruptcy.

    If he has no assets (in Alberta, you get to keep $4000 furniture, $4000 personal effects, $5000 equity in a vehicle, $40000 equity in a personal residence and up to $10000 tools required to earn a living.  Also pensions (includes LIRAs) RRSPs RESPs and most life insurance policies are exempt.

    Consumer proposal has to offer more than bankruptcy, and the creditors must approve.

    Mutually agreed upon contract enforced by federal legislation and courts.

    A negotiated cash settlement that offers creditors a greater return than bankruptcy. The credit damage is not as severe as a bankruptcy.

    Title
    WHAT IS A CONSUMER PROPOSAL? CONSUMER PROPOSALS EXPLAINED.
    Article
    WHAT IS A CONSUMER PROPOSAL? CONSUMER PROPOSALS EXPLAINED.
    Description
    A consumer proposal is a financial instrument administered by a Licensed Insolvency Trustee (LIT) to structure payments to creditors. It is a legally binding offer to pay creditors a percentage of what you owe, extend the time you must pay or both. A LIT receives your payments and uses that money to pay your creditors.
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    Fox-Miles & Associates Licensed Insolvency Trustee
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