When determining if a consumer proposal is the right debt relief solution for you, it is recommended to first understand the whole process. The process for completing a consumer proposal can be smooth if you follow the Licensed Insolvency Trustee's guidance and perform all your duties.
When it comes to dealing with unmanageable debt, filing a consumer proposal in Ontario can be a very effective way to help regain financial control and get debt relief. Having never filed a consumer proposal before, the process may seem scary, so it’s important to understand the steps and requirements involved to ensure the process goes as smoothly and quickly as possible.
This guide will provide an overview of what a consumer proposal is and who can file one, followed by a step-by-step explanation of the consumer proposal process in Ontario, including what documents are required and what happens after filing. It will also provide some helpful tips for successfully completing a consumer proposal.
What is a Consumer Proposal? Ontario
A consumer proposal is a legally binding agreement between a debtor and their creditors. It is an alternative to filing for personal bankruptcy, and it offers a way to reduce debt obligations and monthly debt payments by repaying their debts over a certain period.
In a consumer proposal, creditors agree to accept a reduction in the amount they are owed in exchange for repayment of a new agreed-to amount. It is usually completed over five years, and during this period, the debtor will make regular payments to the Licensed Insolvency Trustee who will then pay the creditors.
It’s important to understand that consumer proposals are not a “get out of debt-free” card. You still need to make a reasonable offer to your creditors for them to accept your offer. Generally, creditors will only accept your consumer proposal if creditors will receive more money than if you filed for personal bankruptcy.
Who Can File a Consumer Proposal?
In Ontario, anyone who is unable to pay their debts may be eligible to file a consumer proposal. This includes individuals, couples and sole proprietors. The threshold for filing a consumer proposal is having unsecured debts of less than $250,000, excluding any debt for a principal residence. This can include credit card debt, lines of credit, payday loans and more. Secured debts are listed but not compromised in the consumer proposal unless the asset is returned upon filing the consumer proposal.
Before filing a proposal, it’s important to understand that some debts cannot be included in a consumer proposal. These include student loans where you finished school in less than 7 years, spousal and child support payments, fines, and certain court-ordered payments.
The consumer proposal will stay on your credit report for up to three years after you have completed the agreement, so it’s important to make sure that filing a consumer proposal is the best option for you.
Steps for Filing a Consumer Proposal in Ontario
The steps for filing a consumer proposal in Ontario is a relatively straightforward process, but it’s important to understand them before beginning the process and obtaining debt relief.
1) Contact a Licensed Insolvency Trustee
The first step in filing a consumer proposal is to contact a Licensed Insolvency Trustee (LIT). A Licensed Insolvency Trustee is the only person who can legally file a consumer proposal for a debtor. They will review your financial situation and advise different options for paying off your debts.
2) Determine Offer to Creditors
Once you have spoken with a Licensed Insolvency, they will help you decide on an appropriate offer to creditors. They will review your financial situation including your income, assets, debts and budget and determine a reasonable offer to your creditors.
The proposed offer will include how much you will pay towards your debt, how long the repayment period will be, and any other terms for the agreement. Generally, the proposal will be for 60 months with equal monthly payments, as this is the maximum period for a consumer proposal to be completed. It will also provide the lowest monthly payment, so it is most manageable.
3) Gather Documents
Once you have determined the offer to your creditors, you will need to gather the necessary documents to file the consumer proposal. This generally includes government identification, a list of your creditors and amounts owing, recent paystubs, support for assets and a list of your monthly income and expenses.
4) Sign and File the Consumer Proposal
After all of the documents have been gathered, you will need to sign the consumer proposal with the Licensed Insolvency Trustee. The consumer proposal documents can be signed in person or electronically through a video call. The LIT will then file the consumer proposal with the Office of the Superintendent of Bankruptcy (OSB), which oversees the insolvency process in Canada.
Once the consumer proposal has been filed with the OSB, all creditors will be stayed from taking collection activity from you and you will no longer make payments to your unsecured creditors. However, it may take a couple of weeks for creditors to process your consumer proposal and stop their collection activity.
While the monthly payments towards the proposal aren't due until the consumer proposal has been approved by your creditors, you may start the consumer proposal payments immediately upon signing the consumer proposal.
5) Send Notices to Creditors
Once the consumer proposal has been filed with the OSB, the Licensed Insolvency Trustee will send notices to all of your creditors, including any secured creditors. This will include the details of the proposal, such as the offered amount, the repayment period and the list of all other creditors and their amounts owed. The secured creditors will want a copy of the consumer proposal, to know whether you are keeping your secured assets or returning them. For example, this includes if you will continue making mortgage or car loan payments.
Also, you will still be responsible for paying your other monthly expenses such as rent, internet and telephone bills.
6) Wait for Creditor Responses
Once the creditors have received the consumer proposal, they will have 45 days to either accept or reject your offer. The creditors will need to prove their claim with the Licensed Insolvency Trustee by filing a claim form and attaching a statement for the amount owing as of the consumer proposal filing date. They may also vote whether to accept your proposal, vote against your proposal or vote against your proposal and request a meeting of creditors.
7) Meeting of Creditors
After the 45th day of filing your consumer proposal, the Licensed Insolvency Trustee will review the votes received from creditors and determine if the consumer proposal has been accepted. If more than 50% of the creditors voted in favour of your consumer proposal, it will be accepted. Also, if less than 25% of the creditors don't request a meeting of creditors then the consumer proposal will also be accepted.
If more than 25% of the creditors request a meeting of creditors, the Licensed Insolvency Trustee will be obligated to call one within 21 days. Before the meeting, the LIT will see if the consumer proposal has more than 50% of creditors voting in favour of it. If not, the LIT will contact you and speak to you about entering negotiations with the creditors to get their support for the consumer proposal.
If at the meeting of creditors, the consumer the proposal is rejected, the LIT will advise you on other debt relief solutions, including personal bankruptcy.
8) Complete the Terms of the Consumer Proposal
Once the consumer proposal is approved you will have to complete the terms of the proposal. This generally includes paying the agreed to amount to the creditors on the payment schedule. In addition, you will need to attend two financial counselling sessions on budgeting, financial goals and rebuilding credit.
It’s important to understand that you must continue making your payments to remain in good standing with the proposal. If you miss 3 months of payments or do not complete the terms of the agreement, the consumer proposal can be annulled. If this happens, your creditor's rights will be revived, which means they can restart collection activity and charge you interest.
9) Certificate of Full Performance
Once you have finished making the payments and have completed the terms of the consumer proposal, the Licensed Insolvency Trustee will notify the Office of the Superintendent of Bankruptcy. The consumer proposal process will be considered completed and the debts included in the proposal will be legally discharged.
Does Consumer Proposal Affect my Credit Score?
Yes, upon filing a consumer proposal your credit report will have an R7 rating which will stay for 3 years after completion, up to a maximum of 6 years from the filing date.
What Are My Responsibilities During the Consumer Proposal
You will be responsible for making all required payments per your consumer proposal's terms and attending two financial counselling sessions.
You should also advise the Licensed Insolvency Trustee if you change bank accounts for your monthly payments, or to update contact information such as phone number or mailing address.
What is the Cost of Filing a Consumer Proposal?
The cost of the consumer proposal will be based on the terms you and your creditors agree to, and you won't pay extra fees. The fees of the Licensed Insolvency Trustee are deducted from your monthly payments and are amounts are set by the Office of Superintendent of Bankruptcy.
Tips for Successfully Completing a Consumer Proposal
Now that you understand the steps for filing a consumer proposal in Ontario, here are some tips to help ensure that you successfully complete the process:
Review your budget and make sure that you can afford the monthly payments.
Make sure to stick to the plan and make your payments on time.
Keep in contact with your Licensed Insolvency Trustee and provide them with any updates or changes to your financial situation.
Ensure you have provided the Licensed Insolvency Trustee with all of your known creditors and collections agencies so they stop contacting you.
Try to save extra money each month and use that money once or twice per year to pay towards your consumer proposal, to help complete it sooner and in case you need to miss a future payment.
Filing a consumer proposal in Ontario can be a great way to take back control of your finances and find relief from unmanageable debt. However, it’s important to understand the steps and requirements involved in the process to ensure that it goes as smoothly and quickly as possible.
By following the steps outlined in this guide and using the tips provided, you can successfully file and complete a consumer proposal and start to rebuild your financial future.
If you’re considering filing a consumer proposal in Ontario or other debt-relief options, it’s important to speak with a Licensed Insolvency Trustee to discuss your options and make sure that it’s the right decision for you.