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.
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.
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.