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.
This is done by making set payments to the Licensed Insolvency Trustee (LCTaylor) who then distributes the money to the creditors until the balance of your debt is erased.
Proposals are designed on an individual basis to meet the specific needs of each debtor, but ultimately must offer the creditors more money than they would get if you went bankrupt.
Under the Bankruptcy and Insolvency Act there are two types of proposals – Consumer Proposals and Division 1 Proposals.
Both types of credit proposals allow you to settle the debt while preventing creditors from taking legal collection action like a garnishment. They also bind creditors into an agreement so your debt solution is set and will not change.
In Canada CONSUMER PROPOSALS are intended for individual debtors who want to settle their debts for less than they owe with their creditors.
♦ You must owe less than $250,000.00 excluding a mortgage on your principal residence
♦ Proposal must be completed within five years
♦ 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
♦ Always costs more than a bankruptcy
♦ Usually lasts longer than a bankruptcy
♦ Can negatively affect your credit rating
Financial counselling is a requirement of consumer proposals.
DIVISION 1 PROPOSALS are intended for corporations or for individuals who owe more than $250,000.00 excluding a mortgage on a principal residence.
They are very similar to consumer proposals with a few exceptions, including the fact that the debtor is automatically bankrupt if the proposal is rejected by the creditors or the court.
Counseling is not required.