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.

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:

1

Assessment
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.

2

Creditors Vote
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.

3

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.

4

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.

Here’s an example to illustrate the process of a consumer proposal:

Mark has accumulated debt from his credit cards, bank loans, income taxes, and payday loans totalling $55,000. He’s working, he is making the minimum payments for these debts but he knows that when you just make your minimum payments that means you are not paying down the principal debt and his bills are not being reduced despite his best efforts. He also has a mortgage and is afraid a bankruptcy will cost him his home. After consulting with a Licensed Insolvency Trustee, Mark decides that a consumer proposal is his best option for a fresh start. The trustee reviews Mark’s income and expenses and determines an affordable monthly payment and term for him: $330 a month for 60 months. The trustee successfully negotiates on his behalf to pay a total of $19,800 over 5 years. By the end of the proposal, Mark ends up paying just 36% of his total debt.

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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?
Basically, a consumer proposal is an offer to your creditors (the parties to which you owe money) to settle your debts by paying off a portion of your total debt over a period of time. If accepted by your creditors, a consumer proposal allows you to have predictable and affordable monthly payments based on your ability to pay. A consumer proposal also protects you from your creditors so they cannot collect from you while you are up to date with your proposal obligations.
Why would I file a consumer proposal?
Consumer proposal are flexible so we can arrange a plan around you and your unique circumstances. Do you have a seasonal job where you are paid more in the summer? No problem, we can arrangement monthly payments that increase in the summer and decrease in the winter. Do you have an employer who is willing to pay a lump sum to get your proposal completed quickly? No problem, a lump sum proposal can be made as well.

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?
The stress of having owing debt can be overwhelming. Compounding this stress are the demand letters, wage garnishment, collection agency calls would be traumatic to anyone. In a consumer proposal, a “stay of proceedings” is initiated as soon as you file your proposal – this legally prohibits your creditors from contacting you to collect their debts, interest from accruing from the date of filing, or issuing writs which allows your creditors to collect debts by registering an interest against your property or garnisheeing your bank accounts or wages.

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?
Both options require you to make monthly payments. The main difference being that -- in a bankruptcy – in addition to making installment payments, your assets will vest your Trustee. In a consumer proposal, you’ll be able to keep your assets.

Consumer Proposal 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?
Though both of these debt-relief options are legal processes that eliminate debt and provide protection from your creditors, there are many factors to consider in this decision, including where you are living, are the debts enforceable or statute barred, control of your assets, are any of your debts joint with someone who isn’t filing, how will the lack of credit impact your ability to manage your finances, the impact of keeping secured assets that you owe more than they are worth, will there be an impact on your ability to earn an income, how will this impact your ability to sponsor family members to come to Canada, etc. As a firm headed by a Licensed Insolvency Trustee, Frederick and Company Ltd. is well-equipped to evaluate your situation and educate you on your options. Our goal is to empower you to make an informed decision to deal with your debt.
How do I file a proposal?
Before you decide to file a consumer proposal, it’s important that you explore and consider every option available to you. Frederick and Company Ltd. offers free consultations to help educate you on your available debt relief options. If you find that a consumer proposal best fits your circumstances, we’ll meet with you and gather information with the goal of determining an equitable and affordable proposal payment. Once we have all the necessary information, we will create the legal documentation that is needed to initiate the process. You will be provided this documentation in advance you so can read through it and make sure you understand everything. Then we will meet up (virtually during the COVID-19 pandemic) and get the documentation signed. Once we file the documentation with the Government of Canada, we will get a Certificate of Appointment which officially creates the stay of proceedings that protects you from your creditors. Your job is to take it easy and start making payments and we will notify as the creditor negotiations progress and meditate the matter between you and your creditors and work to find a win-win solution that helps you find a sustainable and viable solution for your debt and help your creditor get more than they would get in a bankruptcy.
Which creditors are included in a consumer proposal?
Your unsecured creditors will be stayed (prevented from collecting). Unsecured creditors are creditors like credit cards, lines of credit, personal tax debt that do not have an asset as collateral.

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?
Your unsecured creditors will vote to accept or reject your proposal. If the proposal is accepted by the majority of voting the creditors (each dollar owed to a creditor is a vote), the proposal becomes legally binding on all of the creditors, even those that voted against it. If a creditor of abstains from the vote they are still bound by the proposal if it is accepted by the majority of voting creditors. It is a rare case where a creditor will vote against a proposal and not be interested in a counteroffer – most creditors voting against a proposal are looking to negotiate on the terms of the proposal prior to accepting an amended proposal. If 25% of voting creditors vote against the proposal, we are required to call a meeting of creditors – this gives us extra time to continue negotiating with creditors to continue to work towards a win-win solution. You are required to attend the meeting; however, it is a rare to have creditors attend the meeting as they are typically requesting a meeting to continue our negotiations.

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?
Once a proposal is accepted, you’ll be required to make the agreed upon payments, attend two counselling sessions, and perform any additional duties that you agreed to in your proposal.
Will my proposal payments change based on how much I earn?
An advantage of a proposal over bankruptcy is that the amount you agreed to pay in the proposal is not subject to a change. In other words, if you agreed to pay $300/month for 5 years, and you get a substantial raise at work or receive an inheritance from a family member, your proposal payments will stay the same. You could at that time increase your payments or pay off the consumer proposal - without penalty – which would reduce the duration of the proposal and allow you to complete it sooner.
What if I can pay off my proposal early?
Awesome! Your proposal only stipulates the minimum payments you must make. If you can afford to pay a lump sum or increase the amount of your monthly payments, you’ll be able to finish your proposal sooner.
What happens to my credit rating during and after a consumer proposal?
The proposal will be reported on your credit bureau as an R7 for 3 years after the date you complete your proposal. During your proposal, however, the consumer proposal may appear on your credit bureau as an R9.

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?
Rebuilding your credit is key to getting new credit in the future. Once you have rebuilt your credit, qualifying for a mortgage can be in your sights once again. You must rebuild your credit history with two revolving pieces of credit - a credit card or line of credit - for two years if you want to be successful in obtaining a mortgage in the future. Be careful, though, one missed payment will undermine your efforts to rebuild your credit to the degree necessary to obtain a mortgage after bankruptcy or a proposal.
Will a consumer proposal affect my ability to renew my mortgage?
Our experience is that most people that make their mortgage payments on time do not have an issue renewing their mortgage during a consumer proposal.

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)?
It will be very difficult to obtain a new mortgage during a consumer proposal. It is important advise your Trustee about any future plans to sell your house or purchase a new house prior to filing a consumer proposal so those plans can be discussed and taken into consideration.
Can my car or house be seized in a consumer proposal?
You need to decide in advance of the consumer proposal if you are going to be keeping your secured assets such as your car or house. It is important to take into consideration the monthly cost of these assets, your ability to continue paying them after the proposal has been initiated, the difference between the value of the loan and the value of the asset and whether there is a shortfall (you owe more than the asset is worth).

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?
There is a lot of misinformation out there about bankruptcy which creates fear about losing everything. It is understandable that people who are filing for bankruptcy and consumer proposals to be worried about their assets being taken away from them. When a Trustee administers a consumer proposal, they must compare it to a bankruptcy to provide creditors with a comparison so creditors can see the benefits and consumer proposal will provide that are above and beyond the estimated dividends available in a bankruptcy. As a result, some of the questions we ask (e.g., information about your assets) will allow us to determine what a bankruptcy would look like.
Should I sell my assets to fund a consumer proposal?
This is entirely up to you. We will be reviewing your budget as part of our review – we review your budget to make sure your consumer proposal payment manageable month in and month out. As such there should be no need for you to sell your assets unless you wish to pay off your proposal early or if you no longer require the asset.

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?
Upon the completion of a consumer proposal, you are issued a Certificate of Full Performance, a document that acts as a legal release from the dischargeable debts under the consumer proposal.
What if I miss a payment in a proposal?
We will set up an automatic payment system to withdraw funds from your bank account to avoid having you come in each month with a payment or waiting for a cheque to cash – but it is important that you ensure that there is enough money in your account to cover the payment.

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?
You can miss two consumer proposal payments; however, once you have missed three payments your proposal will be deemed annulled – this means that the stay a proceedings which protected you from your creditors is lifted, and your creditors can pursue you for a collection again. This is why it is very important to be realistic about the expenses in your budget, to continue to review your expenses and set a budget. We can help you review your budget in your counselling session. Prior to the filing of the consumer proposal, we will review your expenses to make sure that they are reasonable and realistic as well.
What are my options when a consumer proposal is annulled?
When your proposal is an annulled, we can review your situation and look at the option of reviving your proposal which would allow you to continue with your proposal if your creditors did not object to the revival. This would restart the proposal and allow you to continue the payments as agreed.
What if I lose my job and can no longer make payments?
When it becomes difficult to make it the proposal payment, sometimes, we find that this is when people can stop reaching out, stop asking for support, and stop communicating with us. But it is very important to keep in touch so that we can help you through these tough times and look for solutions that can help you get back on track. Just because you are in a proposal does not mean life is not going to happen – it will happen, and we will be there to help you if you’re struggling with your payments. If you are unable to continue making payments due to a change of your circumstances, call Frederick and Company Ltd. right away and we will guide you through your options.
What is covered during counselling sessions?
If you enter into a consumer proposal, you are required to attend two counselling sessions. 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. At Frederick and Company Ltd., these sessions are one-on-one with our certified counsellors, so the conversation will be focused specifically on you and the questions you would like answered.
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.