If your creditors are pushing you for payments you can’t make but you don’t want to file Bankruptcy, you may want to consider filing a Consumer Proposal. There are many benefits to a Consumer Proposal, and it may be just what you need to get your finances back on track.
What is a Consumer Proposal?
A Consumer Proposal is a proposal that you and your Licensed Insolvency Trustee (LIT) draw up and present to your creditors. The proposal may include a request to reduce the amount you owe, increase the time you have to pay, or eliminate your fees and charges. Your proposal can contain any or all of these options as long as you can complete the agreed upon payments within an agreed upon period of time (a maximum of five years).
Your LIT then forwards the proposal to your creditors. They decide whether or not to approve your offer. Most creditors prefer a Consumer Proposal over a Bankruptcy because they will get back more of what is owed them.
Consumer Proposals can only be filed through a Licensed Insolvency Trustee (LIT). LIT’s are the only professionals in Canada who are licensed by the federal government to administer Consumer Proposals and Bankruptcies. Some credit counselling agencies may offer an informal proposal of sorts, but those do not have the weight of law behind them, and do not provide any protection from your creditors, should a creditor decide not to honor an agreement. Once accepted, Consumer Proposals are binding on all of your unsecured creditors.
What are the benefits of a Consumer Proposal?
A Consumer Proposal has a number of benefits that make it a good option for people who can’t afford to pay back their debts but don’t want to file Bankruptcy. A few of the advantages include:
- A Consumer Proposal lets you keep all of your assets. In a Bankruptcy, provincial legislation allows you to keep your personal effect and household furnishings, a car to get to and from work, tools of your trade registered pensions and RRSP’s as well as some equity in your home. If you are a farmer the list of things exempt from seizure in the Bankruptcy is quite extensive. However, in a Bankruptcy, in spite of you keeping all those things listed, there may be other assets that are not included among the exemptions. Things that are not considered essential — recreational vehicles or cottage properties are a good example of what might NOT be considered exempt in a Bankruptcy. If you owned anything of that nature, you could, in a Bankruptcy, be required to turn it over to your Trustee so that it can be sold for the benefit of your creditors.
In a Consumer Proposal, you are allowed to keep all of your possessions. The value of the items that would have been given up in a Bankruptcy, will need to be included in the amount you pay your creditors, but you will not be required to give them up. The total amount you pay back and how much your monthly payment will be, is decided during the process of drafting your Consumer Proposal. The proposal is required to pay the creditors more than a Bankruptcy would pay, so the amount you pay to your creditors will be based on what you can afford, over what period of time, and what non-exempt assets you are retaining.
- It stops collection activity. One of the most stressful things about owing money is the frequent calls from creditors. Once you file a Consumer Proposal, all collection activity against you stops. This is the law. This includes phone calls, letters, wage garnishment, and so forth. As long as you are making your monthly payments as you agreed to in your proposal, your proposal will remain in effect and the people you owe money to cannot contact you.
Once your proposal has been accepted, it becomes binding on all of your unsecured creditors, so collection is not allowed by any creditor, whether they have voted for or against the proposal. Creditors also cannot withdraw from a Consumer Proposal and initiate new collections. As long as the Consumer Proposal is in place, and your are meeting the agreed upon requirements for payments, your creditors are bound to the agreement. - It lets you pay back some of your debts. A Consumer Proposal provides a way for you to pay back a portion of your debts. It does not require that you pay 100% of the debt owed. Once the proposal is completed, with all the agreed-upon payment made, your entire debt is eliminated.
- It doesn’t require that you report your income. In a Bankruptcy, you must report your income and expenses on a monthly basis. This does two things, it helps you to get your finances back under your control, and it provides the Trustee with the information they need to determine how much you need to pay each month of the bankruptcy. If your income exceeds the maximum that the federal government has determined is necessary, you are required to pay 50% of the excess to your trustee for the benefit of our creditors. With a Consumer Proposal, you don’t have to do this. You need only make your monthly payments as outlined in the proposal. Your income could increase or decrease and it would not affect the agreed upon monthly amount.
- It provides flexibility. You do have the flexibility to pay off your proposal sooner if you can, should your circumstances change. This also results in a shorter amount of time the proposal stays on your credit report.
If your debts have overwhelmed your budget, a Consumer Proposal can be an excellent option for getting your finances back on track. A Licensed Insolvency Trustee can help you look at all of your options, including a Consumer Proposal, so that you can determine whether or not it is an option that works for you.
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Jillian Taylor-Mancusi, LIT
