As a Licensed Insolvency Trustee, DEVLETIAN & ASSOCIATES INC. is available to guide you through these difficult financial times. A consumer proposal is sometimes the mutually beneficial solution for both debtors and creditors. The following are some key question and answers clarifying a consumer proposal. Please contact us for your free personal evaluation and consultation.
What is a Consumer Proposal?
Governed by the Bankruptcy and Insolvency Act (“BIA”), a consumer proposal allows a person to reduce the amount of their debts, extend the time to pay off the debts, or provides some combination of both. The consumer proposal is available to debtors whose total debts do not exceed $250 000, excluding a mortgage for the person’s principal residence. If your unsecured debts are above $250,000 (excluding your mortgage), or if the debts are related to a business, then please view our Division 1 Proposal page.
The consumer proposal is a fixed monthly payment offer in exchange of one or multiple payments towards unsecured debts, which the debtor is unable to financially support.
Once the consumer proposal is filed, there will be NO MORE INTEREST added to the debt.
In order for the consumer proposal to be accepted, it requires a majority of your creditors to accept the proposal, and it is legally binding on all parties. The creditors have 45 days to look over the proposal and vote on whether or not they think that it is a good proposal and if they want to accept it
Upon completion of the consumer proposal, you will be released from the balance of your debts.
Unsecured creditors will not be able to enforce any judgements or garnishment orders to recover their debts unless or until the proposal is rejected or annulled. That means if your creditors are GARNISHING your salary or bank accounts, then they would have to stop immediately if you file a proposal.
How do I qualify for a Consumer Proposal?
The debtor must be insolvent, must be a resident of Canada and owe a minimum of $1000.
For a consumer proposal to be acceptable to a debtor’s creditors, it must clearly provide the creditors with a greater return or payment on their outstanding accounts than they would receive in bankruptcy proceedings. On the other hand, the consumer proposal must be achievable. There is no advantage to preparing a consumer proposal if it is too “rich” or so onerous that the debtor cannot possibly hope to comply with its terms.
For a consumer proposal to succeed, it will generally have to be in a situation where one of the following is applicable:
- The debtor has steady employment which provides a level of income above that necessary for normal living requirements (surplus income).
- A third party is prepared to provide funding or guarantee for the consumer proposal settlement.
- Certain assets which may not be available to the creditors in a bankruptcy proceeding are voluntarily offered as part of the proposal.
What are the advantages to making a Consumer Proposal?
- THE DEBTOR WILL NOT CARRY THE STIGMA OF HAVING A BANKRUPTCY FILING ON THEIR CREDIT RECORD FOR THE REST OF THEIR LIFE!
- The debtor gets to keep his/her assets; however, they must be taken into consideration when determining the amount offered to the creditors.
- The debtor makes one manageable monthly payment to the Licensed Insolvency Trustee/Administrator and the Licensed Insolvency Trustee/Administrator distributes the funds to the unsecured creditors on a periodic basis.
- The debtor participates in two mandatory financial counselling sessions. These sessions will help the debtor to understand the reasons for the financial difficulties and will also provide the debtor with the tools needed to avoid financial problems in the future.
- The debtor’s financial difficulties are resolved without having to go bankrupt.
- The successful completion of the consumer proposal will be recorded on the debtor’s credit rating.
What if my spouse and I have the same debt?
To qualify to file a consumer proposal jointly: all or most of the debts for the individuals involved must be similar and DEVLETIAN & ASSOCIATES INC. must agree that a joint consumer proposal would be in the best interests of you and your creditors. Fees for a joint consumer proposal would be the same as if there had only been one person who had filed.
How do I deal with my creditors after the consumer proposal is accepted?
After your consumer proposal has been filed, your creditors should be communicating directly with us. If you are contacted directly by a creditor, you should refer them immediately to us to ensure that they have been made aware of the consumer proposal and we can direct them as to their rights as creditors under the BIA.
What about creditors who are suing me?
The court action is stopped once a consumer proposal is filed. The creditor is treated like any other creditor in the consumer proposal.
What if my wages are being garnished?
This is also a court action that will be stopped when your consumer proposal is filed. The Trustee/Administrator will notify the creditor and instruct your employer to cease the deduction from your wages.
Can I keep making payments on my car or mortgage?
You may either include your secured creditors in your proposal or make alternate arrangements with the creditor so that you may keep the asset. Usually you would be able to continue making your regular car or mortgage payments if you are able to make the monthly payments work within your personal budget. When making a consumer proposal you are encouraged to look at all your debts and determine if it is in your best interest to continue to make these payments.
How is my credit rating affected?
A consumer proposal is usually a matter of public record at a credit bureau. This information is available to credit grantors and may affect your ability to get credit in the future. However, if you have currently missed payments to your creditors or already find yourself the target of collection agencies, this information is most likely already reflected on your credit rating. Filing a consumer proposal is generally reported on your credit rating for shorter period of time, and usually considered a better rating than if you file for bankruptcy.
What are my responsibilities under a Consumer Proposal?
If you file a consumer proposal, you must:
- give the Trustee/Administrator a complete list of all of your assets (property) and liabilities (debts);
- attend the first meeting of creditors, if a meeting is requested;
- attend two counselling sessions;
- advise the Trustee/Administrator in writing of any address change;
- provide general assistance to the Trustee/Administrator in administering the consumer proposal.