In Canada, a Consumer Proposal is a formal offer from you to your creditors, where you agree to pay part or all of your debt over a specific period of time.

In Winnipeg and Manitoba, like the rest of Canada, a Consumer Proposal is a formal offer made by you, to your creditors, through a Licensed Insolvency Trustee (LIT). With the proposal, you agree to pay part or all of your debt over a specific period of time. The payments you make will result in 100% of your eligible unsecured debt being eliminated, regardless of whether the total paid is the full amount of the debt or just a portion of the debt.

Under the Bankruptcy and Insolvency Act there are two types of proposals – Consumer Proposal and Division 1 Proposal.

Both types of credit proposals allow people to settle the debt while preventing creditors from taking legal collection action like a garnishment. They also bind creditors into an agreement so that your debt solution is set and will not change. Since the Division One proposal is designed for people with debt over $250,000 (excluding the mortgage on their home), or for corporations, it may not be the appropriate solution for most people looking to deal with problem debt. For more information on Division One proposals, go to What is a Division One Proposal?

A CONSUMER PROPOSAL is designed on an individual basis to meet the specific needs of each debtor, but the proposal must ultimately offer the creditors more money than they would get if you were to go bankrupt. When you meet with your Licensed Insolvency Trustee, they will go through your situation with you in detail, and provide you with information on any debt solution options that would work for you. If you decide that a Consumer Proposal is the best option for you, your LIT will work with you to determine how to best structure a Consumer Proposal that would work for you.

Your LIT will help you determine how much you will be able to pay, and over what time period. It is very important that you offer the creditors what you can realistically afford to pay over the period of time that works for you. For example, if you are working on a 3 year term contract, it would likely be unwise to commit to a proposal that lasted longer than your employment contract. Likewise, you will need to be realistic about how much you can pay. You need to be sure that you will have enough money left over each month to cover emergencies as they come up. We can never predict when the furnace will stop working or the car will break down.

After the proposal is filed, your creditors will be given the opportunity to vote for or against it. As long as creditors representing the majority of the dollar value of your debt, vote in favour, the proposal is accepted and is binding on all of your unsecured creditors. If 25% of your creditors vote against your proposal, a creditors’ meeting is held. You and your LIT may then work on an amendment to the proposal, if you feel you could offer them more. The creditors can accept or reject your amended proposal at the time of the creditors’ meeting. If the proposal is ultimately rejected, you are free to pursue other means of getting relief from your debt. Proposals are rarely rejected, because your Trustee has in depth experience in the field and usually has a very good idea of what will be acceptable to specific creditors.

During the proposal you make payments to the Licensed Insolvency Trustee who then distributes the money to the creditors until the proposal is completed. At that time, the balance of your eligible debt is erased.

In some cases, an individual has a fund of money from an outside source that is not adequate to pay all of their debts, but would pay a portion of those debts. In those situations, some people opt to file a lump sum proposal, where, if accepted, they pay a set amount up front, it is distributed to the creditors, and then the proposal being complete, all remaining eligible unsecured debt is discharged. This is a situation where creditors might vote for a proposal that did NOT pay as much as a bankruptcy, because they have the added advantage of receiving their full payment almost immediately, rather than being paid out over up to 5 years.

Financial counselling is a requirement of Consumer Proposals. You will be required to attend two Financial Counselling sessions provided by your LIT, to assist you with budgeting and planning.

In Summary:

CONSUMER PROPOSALS are intended for individual debtors who need to settle their debts with their creditors for less than they owe, or who want to pay the full debt, but need more time and relief from interest and penalties.

Qualifications:

• You must owe less than $250,000.00 (excluding a mortgage on your principal residence)
• Proposal must be completed within five years
• A Consumer Proposal can only be filed through a Licensed Insolvency Trustee

Advantages:

• Provides you with an affordable means of paying back at least a portion of what you owe
• Gets you out of debt
• Offers affordable payments
• Eliminates additional interest charges
• Provides protection from all collection by your creditors through an automatic Stay of Proceedings
• Prevents, or if necessary, stops garnishments from unsecured creditors
• Has tremendous flexibility in the design of the proposal.
• The proposal is binding on all unsecured creditors

Disadvantages:

• Nearly always costs more than a bankruptcy
• Generally lasts longer than a bankruptcy
• If you fail to complete the proposal, with all payments made, the full amount of the remaining debt is again owing. It is only erased when payments are completed.
• There are some debts that cannot be discharged through a Consumer Proposal. They are:
  • Student loans that are less than 7 years old
  • Alimony, Maintenance, and Child Support
  • Fines and penalties of the court
  • Debts that are the result of fraud or misrepresentation
  • Intentional injury claims

What Now?

If you are struggling with debt, as many in our Province are, it’s a good idea to seek professional help from a Licensed Insolvency Trustee sooner than later. The sooner you seek out debt solutions, the more options you will have to solve your problem. When we meet with someone in an initial consultation, we review ALL of the possible options they have. If you require a legislative option, like a Consumer Proposal, our experienced Trustees can help you design one that works for you. Give LCTaylor a call today.