Most Winnipeg residents in deep financial trouble do all they can to stay afloat. They hear advertisements from credit counselling agencies about solutions that “reduce debt and monthly payments without bankruptcy”. Hearing that, people often don’t realize that bankruptcy can be the best, and sometimes the only solution to personal financial problems. So why do we hear those ads? Probably because credit counselling agencies can’t offer bankruptcy as an option, since they are not licensed to deal with bankruptcies. So, they steer people towards their informal debt repayment schemes, even if those schemes won’t solve the problem or provide any protection from creditors.
There is a second debt solution that is not available through a credit counsellor, and that is Consumer Proposal. Licensed Insolvency Trustees are the only professionals licensed to administer Consumer Proposals and Bankruptcies in Manitoba. Credit counselling ads won’t tell you that informal debt settlement plans offer absolutely NO legal protection from your creditors. You could enroll in one of these informal arrangements, and still have one of your creditors garnish your wages. A Consumer Proposal is a better solution that offers more benefits and can actually stop or prevent garnishments.
How Does a Consumer Proposal Differ From a Bankruptcy?
Bankruptcy works well for people who need to get out of debt quickly, or who do not have what are considered non-exempt assets. For example in a bankruptcy, if you have assets that are not exempt, they must be sold and the funds go to the Trustee for the benefit of the unsecured creditors. These are generally assets that are not considered essential — things like recreational vehicles, cottage properties, etc. Your essentials, such as your home, household effects, a vehicle, pensions and RRSP’s, have exemptions from seizure in both a bankruptcy and a proposal. However, if you have non-essential property, you could lose some of them in bankruptcy.
The government added Consumer Proposals to the Bankruptcy and Insolvency Act of Canada to allow people who can afford to pay a portion of their debt to do so without losing their non-exempt assets. In a Proposal, you agree to pay the creditors what you can afford, over a reasonable period of time. LIke a bankruptcy, proposals provide legal protections from your creditors, thus preventing them from contacting you, and stopping or preventing garnishments.
The total amount you pay over the length of the proposal will be determined by a two main factors:
- What you can afford to pay and for how long, based on your income and your family needs. Note that it is NOT based on the total amount you owe. Many Consumer Proposals are designed to pay only a small percentage of the total owed. However, after completion of the proposal, 100% of all the unsecured debt is erased.
- Since the proposal generally needs to pay the creditors more than they could reasonably expect in a bankruptcy, the value of any non-exempt assets that are not being used as security with a secured creditor, must be included in the amount paid over the length of the proposal.
How Do You File a Proposal?
You first meet with a Licensed Insolvency Trustee, who will review your financial situation in detail and discuss with you all of your possible debt relief options. These will include a Consumer Proposal, an Assignment in Bankruptcy, and other non-legislative options that could work in your situation.
If you decide to pursue the option of a Consumer Proposal, your Trustee will help you to determine a monthly payment you can afford to make, as well as what period of time you are likely to be able to make that payment. For example if you are working in a term position, it would be unwise to file a proposal that lasts longer than the term of your employment. You want to file a proposal that you are confident you will be able to complete. Proposals can last anywhere from a few months to a maximum of 5 years.
Once the proposal is worked out, the LIT then sends it to your unsecured creditors, who can vote for or against the proposal. If the majority of the creditors (based on the dollar value of their claim), vote for the proposal, it is deemed accepted, and binding on all of your unsecured creditors. The single payment you make to the trustee each month replaces the payments you were making to each of your unsecured creditors. The protection from your creditors goes into place as soon as you file your proposal, and stays in place for the entire duration of the proposal. When the proposal is completed, the debt is wiped out.
Note that the proposal only affects your unsecured creditors. Creditors with security will not be included in the proposal. The exception to this would be if you plan to give up the item on which they have security. Let’s say you are “under water” with your car loan. That is, you owe significantly more to the secured creditor than the car is worth. The proposal would be your opportunity to give up the vehicle to the secured creditor, and include the shortfall in your proposal.
Once a majority of creditors agrees, by law, all must honor the proposal. That means none can change their minds and garnish your wages later. They cannot sue you. They cannot even contact you directly. All you have to do is continue to make the new monthly payment to the trustee and complete the payments on the schedule outlined in the proposal. Once the proposal is completed, with all payments made, the entire debt is discharged.
Legal protection is not the only advantage of a proposal. Because a Consumer Proposal can only be filed through a Licensed Insolvency Trustee, you can be confident that you are working with one of the most qualified and highly experienced professionals in the debt relief field.
A Consumer Proposal will also cost you less than one of those debt settlement plans you see advertised on television. While a credit counsellor will typically charge you a large up-front enrolment fee, as well as monthly maintenance and commissions, a LIT does not do that. The only upfront fee is a filing fee charged by the federal government to cover the government’s cost to file the proposal. The administration costs of the Trustee come out of the proposal as it progresses. This means that the creditors pay those costs. The amounts charged for those costs are regulated and audited by the federal government.
An initial consultation with a Licensed Insolvency Trustee is free of charge. You have nothing to lose by scheduling an appointment. Give us a call today, and we will help you find a solution to your debt problem that works for you.