What is a consumer proposal?
A consumer proposal is an offer to your creditors (the parties to which you owe money) to settle your unsecured debts by paying off a portion of your total debt. If accepted by your creditors, a consumer proposal allows you to have predictable and affordable monthly payments based on your income or it allows you to make a lump sum payment into the proposal to resolve your debts.
How do you calculate the cost of a consumer proposal?
Unlike other options where the total debt is the major consideration when determining the cost – like informal settlements, Orderly Payment of Debts, consolidation loans, and paying your debt down on your own – the cost of consumer proposal is not based on how much debt you owe. Instead it is based on your ability to pay – the province you live in, your income, expenses, non-exempt assets (extra assets above and beyond necessary assets like household goods, personal effects, car, house, RRSPs, life insurance), and how many people are in your household are key considerations when determining the cost of a consumer proposal.
NOTE: consumer proposal calculators found on the internet purporting to tell you how much your consumer proposal will cost are inaccurate unless you have provided the above information to aid in the calculation. Be very careful about relying on these tools when making your decision about the best option for your financial future.
The 4 stages to a consumer proposal:
In this initial stage, we’ll be working closely with you to educate you about your debt relief options. We will talk about all your options, not just a consumer proposal. There is no option that will work for everyone 100% of the time so we want to provide you with the pros and cons of each option specific to your situation so you can make an informed decision for yourself. If you find that a consumer proposal is best suited for your situation, we’ll begin gathering information about you, your circumstances, and your finances. This information will allow us to put together an accurate and fair consumer proposal.
The proposal is filed and a “stay of proceedings” will go into effect, which provides you with legal protection from your creditors, including protection from wage garnishment, debt collection calls, legal action, and interest accruement.
In a consumer proposal (where your total unsecured debts total $250,000 or less) your creditors can vote in favour, vote against, or make a counteroffer to your proposal. For a proposal to be accepted, the majority of your creditors must vote in favour of the proposal where every dollar a creditor is owed is equivalent to a vote – the bigger the percentage a creditor has of the total debt the more say they have in the proposal.
It is possible that a meeting of creditors can be called as a part of the voting process. This meeting is usually held to facilitate the negotiation process, allowing creditors to make a counter-offer to your proposal. It also serves as a mechanism for holding discussions with creditors who may need more information before casting their vote.
Proposal payments and counselling sessions
Once the proposal is accepted by the creditors and the court – which happens automatically if no creditors object – it comes time to make good on the proposal terms set out. You’ll be responsible for making your proposal payments on time. It’s important that you remain diligent with your payments because if you miss three payments the proposal will be annulled and stop offering you protection from your creditors. It is a very good strategy to add a little extra to each payment so you have a buffer built up in case something prevents you from making your payment during the term of the proposal. You can also pre-pay your proposal at any time without penalty which reduces the proposal term.
In addition to the explicit terms in the proposal there is a requirement to attend two counselling sessions as part of this process. These sessions are intended to educate and empower you to build healthy financial habits. The topics covered in these sessions include money management, spending habits, warning signs of financial difficulty, and obtaining/using credit. These sessions are one-on-one with our in-house certified counselling professionals so the conversation will be focused on you and the questions you’d like answered.
Proposal completion and credit repair
Congratulations! Once you have made all the payments, attended the two counselling sessions, and completed any other terms outlined in your proposal you are done! You’ll receive a Certificate of Full Performance, which legally releases you from most unsecured debts you had in your name at the time you filed the proposal. This will provide you with a financial fresh start as remaining amount owing on your debts is written off. There are some debts that are not discharged – ie. child support, fines imposed by the court, student loans younger than 7 years – that you will still have to pay with the proposal is over. As part of the assessment process we have reviewed these debts to with you so you would have known if any of your debts would fall into this category prior to filing the consumer proposal.
Using the knowledge gained from the counselling sessions, you will have already worked on rebuilding your credit during the term of the proposal and you should be on your way to repairing and rebuilding your credit.
The advantages of a consumer proposal:
Upon completion, you’ll be debt-free after paying off only a portion of your total unsecured debt.
You’re protected from your creditors because of the “stay of proceedings” that prevents creditors from taking further legal action against you.
Proposals are binding throughout the entirety of its administration. A proposal that is approved by greater than 50% of creditors is binding on 100% of creditors — even the ones who vote against the proposal or opt-out of the process.
Proposals are a viable way of settling your debt because you are offered more money to creditors than bankruptcy which is in your creditors’ best financial interests.
Proposals have fewer reporting requirements. In a bankruptcy, you would be required to report your financial situation to the Trustee each month. In consumer proposals, there are no reporting obligations required during the term of the proposal unless you decide to include them as a term of your proposal.
You are free to deal with your assets as you see fit during the term of the proposal. In comparison in a bankruptcy, your current assets are controlled by the Trustee and your future assets could also need to be paid into the bankruptcy too.
Proposal payments are consistent and predictable. You’re able to determine how much you can pay monthly within the restrictions of your budget — and add new income will not cause your payments to increase. If you’re able, you can choose to pay down your proposal quickly without consequence, shortening the term of the proposal.
Proposals only affect your credit bureau for 3 years after completion, and we work with you to help you understand how to repair and rebuild your credit rating.
Upon successfully making all payments and attending 2 counselling sessions your debts will be legally written off — subject to a few restrictions — letting you build your financial future once again.
Remember only a Licensed Insolvency Trustee can help you file a consumer proposal
There are lots of companies out there that purport to provide this service however if they are not listed on the Government of Canada’s website to see that they are listed here https://www.ic.gc.ca/app/scr/tds/web/?lang=eng
Then they cannot administer a consumer proposal as they are not licensed as a Licensed Insolvency Trustee.
To determine how much it will cost you given your unique circumstances please give us a call – we would love to chat and help you find your solution for moving ‘from financial distress to financial success™ ‘
Would you like to pursue this option?
No sell and no pitch, just real help. Let’s talk about this option and double-check that it is the right one for you.
Consumer Proposals FAQs
What is a consumer proposal?
Why would I file a consumer proposal?
A consumer proposal is binding on 100% creditors when it is approved by the majority of creditors where every dollar outstanding is a vote. The creditors with more owed to them have more of a say in the proposal.
Once you successfully complete your proposal, you are legally released from paying your dischargeable debts. There are several other advantages to consumer proposals. See this page for more information regarding consumer proposals.
Will a consumer proposal stop collection calls and wage garnishment?
There are, however, limitations to a stay of proceedings: it does not stop orders associated with ongoing debts such as your ongoing utility bills, rent, child support or spousal support obligations.
What’s the difference between a consumer proposal and a bankruptcy?
|Assets||You have control of your assets after the consumer proposal is filed||Your assets vest with the Trustee. Exempt assets (see HERE for more details) are protected from your creditors and the value of the non-exempt asset must be paid into the bankrupt estate.
After-acquired assets can also come into the estate if they are acquired before you get a discharge from bankruptcy.
|Length||Up to 5 years, but it can be paid off earlier if you have the means to do so, without penalty||9 - 21 months for first-time bankruptcy and 24 – 36 months if you have been bankrupt before|
|Cost||The cost is based on the amount that would be payable to creditors in a bankruptcy – a consumer proposal must offer a better advantage to creditors over that provided for by a bankruptcy.||Based on your ability to pay including your income and any non-exempt assets|
|Credit rating||R7 remaining for 3 three years after you complete proposal (click here for more information about credit in Canada)||R9 remaining for 6 years from the date you are discharged from bankruptcy (click here for more information about credit in Canada)|
Should I file a bankruptcy or consumer proposal?
How do I file a proposal?
Which creditors are included in a consumer proposal?
A secured creditor is someone who is owed money but they have an asset as collateral such as mortgage (where the house is collateral) or a car loan (where the car is collateral). If the secured creditor does not receive their payment, they have the option of seizing the collateral and using that to pay down the loan.
Sometimes, the secured creditor can be owed much more than what the collateral is worth. This means that the secured creditor will be owed money even after the car or the house is sold and its proceeds are applied against the loan, which will become an unsecured debt. In these situations, some people decide to include these secured creditors in their consumer proposal – if they stop making payments to the secured creditor, then this debt will be included in the consumer proposal or bankruptcy and the secured creditor cannot collect the shortfall.
Are there debts that are not included in a consumer proposal?
Generally, unsecured creditors are paid a dividend in the proposal and anything that they do not receive is written off when the consumer proposal has been completed. However, there are some debts that are not stayed by the consumer proposal:
Ongoing debts: Ongoing debts are not stayed. Good examples of this would be your rent, utilities, child support, taxes for the time period after the proposal, etc. Also, any secured debts that you wish to keep, and you make a payment on after the date of the proposal, would continue to be your responsibility after the proposal.
Undischargeable debts: There are some debts that do not get discharged after a consumer proposal or bankruptcy. These debts are listed under section 178 of the Bankruptcy and Insolvency Act. These debts include but are not limited to child support, spousal support, fraud, a judgment arising from intentional bodily harm, and student loans that are younger than 7 years old. These kinds of debts should be discussed as part of your consultation – if any of these apply to you – so you are aware they will not be written off at the end of the process. They will be stayed during the process and will receive dividends throughout the process which will reduce the amount owing after the proposal is complete.
Who gets to vote on my proposal?
For the rare meetings where creditors have chosen to attend it provides the creditor a chance to ask questions if there are additional details that would help them decide their vote, discuss the proposal, request amendments to the proposal, request an adjournment to postpone the meeting, or appoint inspectors to the estate who will work with the Trustee on the estate administration. While this can sound very scary to someone filing a proposal it is not intended to be an opportunity to shame or bully you. A consumer proposal is an open and honest process and this meeting facilitates these kinds of discussions to help creditors get informed and vote accordingly.
If the proposal is accepted, what do I have to do?
Will my proposal payments change based on how much I earn?
What if I can pay off my proposal early?
What happens to my credit rating during and after a consumer proposal?
Even while you are in the middle of your proposal, you can get credit again and start the credit rebuilding process. Most creditors do not report to the credit bureau, however there are a few creditors that continue to report during the consumer proposal, which can impact the speed at which your credit rating improves.
We recommend that you take an active part in rebuilding your credit. You could leave your credit rebuilding to chance, however, that is risky. We recommend you strategically take steps to continue to rebuild your credit during and after the proposal process - these rebuilding strategies will be discussed in the counselling sessions provided as part of the proposal process. Frederick and Company Ltd. also offers a complimentary third counselling session Focus strictly on rebuilding your credit that you can access at any point during the proposal process.
The sooner you are able to pay off the proposal, the sooner you can improve your credit rating. Click here for more information about Canada credit scores/ratings.
Will a consumer proposal affect my ability to get a mortgage?
Will a consumer proposal affect my ability to renew my mortgage?
Having said that though, each lender has their own policies and guidelines they follow at renewal time, and these are updated from time to time. Additionally, there are frequently new rules in the mortgage world – stress tests etc. - that may or may not impact your mortgage in the future. Most importantly, though, is your payment history – the timing of your payments on your mortgage will have a strong impact on the degree in which they review your mortgage file prior to offering you a renewal.
As a result, this question is quite impossible to answer with certainty without knowing those future events and factors that could come in to play. It is always a good idea to talk to your mortgage broker to strategize about making sure you are eligible for renewal when the time comes.
Will a consumer proposal impact my ability to buy a new house (get a new mortgage)?
Can my car or house be seized in a consumer proposal?
Once you decide that you are keeping the secured asset – and make a payment on the loan after the proposal starts - it will be your responsibility to continue those payments. If you can no longer make payments on your secured loan, then your secured creditor has the right to seize the secured asset.
Unfortunately you cannot decide at a later date to include these debts in the current consumer proposal so it is very important to be realistic about your ability to pay for these debts moving forward.
If you get stuck in this position you still have some options available to you including bankruptcy or the filing of a subsequent proposal which would include the shortfall on the secured debts. However, this is not ideal as you would have to start back at the beginning of this process.
If I can keep my assets in a proposal, why are you asking about them?
Should I sell my assets to fund a consumer proposal?
You also have the option of selling assets to offer your creditors a lump sum proposal. This option can be nice because you will be in and out of the process within 60 to 90 days usually. This allows you to complete the consumer proposal process and rebuild your credit very quickly.
What happens when I finish my consumer proposal?
What if I miss a payment in a proposal?
If you miss a payment, it is important to reach out and work with us to get caught up. If you can pay extra – even an extra $25 a month - it will help you to pay off your proposal early or help you through these tough times when making your payment is difficult.
If you are struggling with your proposal payment, make sure to reach out to us so that we can help you come up with a strategy that will help keep your proposal viable.
What happens when my consumer proposal is annulled?
What are my options when a consumer proposal is annulled?
What if I lose my job and can no longer make payments?
What is covered during counselling sessions?
Should I take a settlement offer offered by my creditor?
It’s not uncommon that when you are behind in payments and your bill has been turned over to a collection agency you will be offered a settlement amount. First it is important to understand the terms of the settlement - it is typical that settlements require a lump sum payment immediately. If you are having trouble making payments, then the lump sum amount may be difficult to manage as well. It is important to get the settlement in writing because you could be asked to pay the balance of the amount owing after paying the settlement amount if you do not have a written agreement stating it was a settlement.
All of this aside I think the most important thing to consider when you are contemplating a settlement by a creditor is to look at the full picture of your financial affairs. Is this settlement going to make your debt manageable? For clarity, manageable means that you will be able to afford the monthly payments needed to pay off your debt. Sometimes, it can be overwhelming to look at the full picture, but it is important to determine if settlement will resolve your debt issues with all your creditors, not just one creditor. It is also important to do the math to make sure this is the case or come and see a Licensed Insolvency Trustee to ensure that making a settlement will resolve your financial difficulties and not delay them.
Can I transfer my property before filing for a proposal?
When you are not in a bankruptcy you have the right to deal with your property. However, your creditors also have rights, and if a property has been transferred, there are numerous legislative avenues a creditor could take to challenge this transaction. It is important to talk to a lawyer about whether transferring your assets could be challenged by your creditors and whether it is a prudent step to take, especially if you are unable to pay your debts at the time of the transfer.