A consumer proposal is a debt-relief solution regulated by the Office of Superintendent of Bankruptcy in Canada. It allows individuals with excessive unsecured debts to negotiate a repayment plan with their creditors. By proposing a revised payment term, often for a fraction of the total debt, individuals can avoid bankruptcy and work towards becoming debt-free.
What is a Consumer Proposal?
A consumer proposal is a debt-relief solution for providing a way for individuals with excessive unsecured debts to negotiate a repayment plan with their creditors. It is a legal process administered by a Licensed Insolvency Trustee (LIT). It involves offering a new payment plan to the creditors, often for less than the total amount owed. The proposal must be approved by the majority of your creditors, and once approved, it becomes legally binding for all involved parties. It is a government-regulated process by the Office of Superintendent of Bankruptcy in Canada.
Benefits of Consumer Proposals
Consumer proposals present several advantages:
Debt Reduction: Consumer proposals can reduce your unsecured debt by up to 85%.
Interest Freeze: All interest and penalties on your debts are frozen upon filing a consumer proposal.
Asset Retention: Unlike in bankruptcy, with a consumer proposal, you get to keep your assets, including your home, car, and equity.
Legal Protection: A consumer proposal provides a stay of proceedings, ending any legal actions like wage garnishments, collection calls, liens, and bank account freezes.
Eligibility for a Consumer Proposal
To qualify for a consumer proposal, you must meet the following criteria:
Individual: Consumer proposals are only for individuals, not corporations or businesses and must be at least 18 years of age.
Insolvency: You must be unable to pay your debts as they come due, or your assets are worth less than your unsecured debts.
Debt Limit: Your total unsecured debts must be more than $1,000 but less than $250,000, excluding the mortgage on your primary residence.
Stable Income: You must have a steady source of income to make the agreed-upon monthly payments.
The Role of a Licensed Insolvency Trustee (LIT)
A Licensed Insolvency Trustee is a federally regulated professional who provides advice and services to individuals and businesses with debt problems. They are the only professionals in Canada legally able to file all forms of debt relief, including consumer proposals. They will act in the role of Consumer Proposal Administrator.
The Consumer Proposal Process
The process of filing a consumer proposal involves several steps:
Initial Consultation: The first step is to meet with a Licensed Insolvency Trustee, who will conduct a comprehensive financial assessment of your situation.
Proposal Preparation: If a consumer proposal is deemed the right debt relief option, the LIT will help you prepare the proposal, outlining how much you can afford to pay back and over what period.
Proposal Filing: The LIT files the consumer proposal with the Office of the Superintendent of Bankruptcy, who then sends it to your creditors for consideration.
Creditors Voting: Creditors have 45 days to vote to accept or reject the proposal.
Proposal Accepted: If the majority of creditors accept the proposal, it becomes legally binding. You start making payments to the LIT, who then distributes the funds to your creditors.
You can learn more about how a consumer proposal works in The Complete Guide to Consumer Proposal in Canada.
Joint Consumer Proposals
Joint consumer proposals are an option for individuals with substantially similar debts, such as spouses or common-law partners. The total debts for joint proposals must not exceed $500,000, excluding the mortgage on the principal residence.
Consumer Proposal vs. Bankruptcy
Choosing between a consumer proposal and bankruptcy depends on your specific financial situation. If you have assets that you might lose in bankruptcy, have a high income, or can afford to make some monthly payments to your creditors, a consumer proposal may be a better option.
A Lifeline for the Financially Distressed
In conclusion, a consumer proposal is an effective debt relief solution for those struggling with unmanageable unsecured debts. It can provide a path to financial stability without the devastating effects of bankruptcy. However, seeking advice from a Licensed Insolvency Trustee is essential to understand the best option based on your unique financial situation.
If you are considering a consumer proposal to reduce your debts, the Litvack Group would be happy to have a Free Consultation to discuss your financial circumstances and review your options. Contact us today!