Consumer Proposals

Dealing with debt can be overwhelming, but there are options available to help you get back on track. One such option is a consumer proposal, which is a legally binding agreement between you and your creditors. In this article, we will discuss consumer proposals in Canada, including what they are, how they work, and their advantages and disadvantages. We will also cover the eligibility requirements, the process of filing a consumer proposal, and what happens after it is accepted. So, let’s dive in and learn more about consumer proposals in Canada.

What is a Consumer Proposal?

A consumer proposal is a legal agreement between you and your creditors, in which you offer to pay a portion of your debt over a period of time. The proposal is filed by a licensed insolvency trustee (LIT), who acts as a mediator between you and your creditors. Once the proposal is accepted by your creditors, it becomes a legally binding agreement.

How Does a Consumer Proposal Work?

A consumer proposal allows you to consolidate your debt and make a single monthly payment, based on what you can afford. The LIT will work with you to create a proposal that offers a fair and reasonable repayment plan for your creditors, while also taking into account your financial situation. Once the proposal is accepted, you will make payments to the LIT, who will distribute the funds to your creditors.

Advantages of a Consumer Proposal

There are several advantages to filing a consumer proposal, including:

• Debt consolidation: A consumer proposal allows you to consolidate your debt into one monthly payment, which can be more manageable than multiple payments.
• Protection from creditors: Once a consumer proposal is filed, your creditors are legally required to stop all collection actions against you.
• Reduced debt: A consumer proposal can help you reduce the amount of debt you owe, as you will only have to pay a portion of what you owe.
• No interest: Unlike other debt relief options, such as debt consolidation loans, a consumer proposal does not accrue any interest.

Disadvantages of a Consumer Proposal

While a consumer proposal can be a helpful tool for debt relief, there are some disadvantages to consider, including:

• Negative impact on credit score: Filing a consumer proposal will have a negative impact on your credit score, which can make it more difficult to obtain credit in the future.
• Limited eligibility: Not everyone is eligible to file a consumer proposal, and it may not be the best option for all types of debt.
• Public record: Consumer proposals are a matter of public record, which means that anyone can access information about your proposal.
• Cost: There are fees associated with filing a consumer proposal, and these fees can vary depending on your situation.

Eligibility Requirements

To file a consumer proposal in Canada, you must meet the following eligibility requirements:

• You must owe between $1,000 and $250,000 (excluding a mortgage on your primary residence).
• You must be insolvent, which means that you are unable to pay your debts as they become due.
• You must be a resident of Canada.
• You must have a stable income or assets that can be used to make payments under the proposal.

Filing a Consumer Proposal

To file a consumer proposal, you will need to work with a licensed insolvency trustee (LIT). The LIT will help you prepare the proposal, which will include details about your financial situation, your assets, and your debts. The proposal will also include a repayment plan, which will outline how much you will pay each month and how long the proposal will last.

Once the proposal is complete, the LIT will file it with the Office of the Superintendent of Bankruptcy (OSB) and send a copy to your creditors. Your creditors will have 45 days to vote on the proposal. If a majority of your creditors (by dollar value) vote in favour of the proposal, it will be accepted and become legally binding.

What Happens After a Consumer Proposal is Accepted?

Once your consumer proposal is accepted, you will make payments to the LIT as outlined in the proposal. The LIT will distribute the funds to your creditors, and you will be responsible for making the payments until the proposal is complete. Typically, consumer proposals last between three and five years, depending on your financial situation and the amount of debt you owe.

Consumer proposals can be a helpful tool for Canadians struggling with debt. They offer a way to consolidate debt, reduce the amount owed, and make payments more manageable. However, it’s important to consider the potential drawbacks of a consumer proposal, including its impact on your credit score and the associated costs. If you’re struggling with debt, it’s a good idea to speak with a licensed insolvency trustee to explore all of your options.