consumer proposal - the #1 alternative to filing bankruptcy

Consumer Proposal -The #1 Alternative to Filing Bankruptcy

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Table of Contents• Page 3: What is a Consumer Proposal?• Page 5: How Does a Consumer Proposal Work?• Page 8: What Happens When my Consumer Proposal is Accepted?• Page 10: Benefits of a Consumer Proposal• Page 13: Rules of a Consumer Proposal• Page 17: Consumer Proposal Eligibility• 0: Debts Erased in a Consumer Proposal• Page 21: Impact of a Consumer Proposal on Credit Rating• Page 23: Life After a Consumer Proposal

What is a Consumer Proposal?

A consumer proposal is a legally binding process administered in a formal manner by a Licensed Insolvency Trustee (LIT).

When a LIT administers a consumer proposal they are known as a consumer proposal administrator.

In this legal process under the Bankruptcy and Insolvency Act your LIT will help you develop a proposal to offer your creditors to pay a percentage of the debt you owe to them over a period of time lasting for not more than 5 years.


https://bankruptcycanada.com/bankruptcy-and-insolvency-act/

What is a Consumer Proposal?


When you enter into a consumer proposal with your creditors you will make payments to your consumer proposal administrator, and in turn, your administrator will make payments to all of your unsecured creditors.

How Does a Consumer Proposal Work?Your consumer proposal administrator will submit the proposal plan to all of your creditors and once the proposal is submitted your creditors will have 45 days to vote to either accept or not accept the proposal plan.

If the creditors request, a meeting of creditors will be held, although they can also mail their vote to your trustee / proposal administrator.

The creditors meeting will be held if one or more of your creditors holding at least 25% of the total proven claims of debt against you request a meeting of creditors to be held within 45 days of the proposal being submitted.


How Does a Consumer Proposal Work?During this meeting, which will be held within 21 days of being requested, your creditors will vote to accept or reject the proposal.

If no meeting of creditors is requested, or your creditors do not supply a vote within the same 45 day time frame then the proposal be automatically be deemed accepted by the creditors.


How Does a Consumer Proposal Work?When your proposal is voted to be accepted your creditors or the OSB will have 15 days in which they can request that your LIT has the proposal reviewed by applying to the court.

The consumer proposal will be accepted by the court if no such request is made within the required time frame.

A consumer proposal plan can last for up to 60 months.


What Happens When My Consumer Proposal is Accepted?

Once your consumer proposal has been accepted you will start following the terms of the proposal:

* You will make the payments as required under the terms of the proposal.

These payments can be a lump-sum payment made up front to end the consumer proposal as soon as possible, or monthly payments for a certain period of time lasting no longer than 60 months. Most consumer proposal payment plans last approximately 3 years;

* You will also be responsible for any other conditions that are required in your proposal plan; and


What Happens When My Consumer Proposal is Accepted?

* You will be required to attend the required two counselling sessions.

The point of these meetings is to help you understand the cause of your financial problems that led to you filing a consumer proposal and help you learn how to manage your finances properly in the future so you can avoid money problems in the future.

Your monthly payment will be the only payment you make; all fees for the trustees’ time and other fees are included in this payment (the trustee will take approximately 20% of your proposal payments to cover their administration fees).


Benefits of a Consumer ProposalOne of the main reasons for filing a consumer proposal is that it allows a person to keep assets that might be lost in a bankruptcy.

A consumer proposal can be a very powerful alternative to filing bankruptcy.

It allows you to keep assets that might be lost in a bankruptcy.

You receive an immediate legal order protecting you from creditor collection action.

You will also stop making payments on your unsecured debt. The trustee will handle all communications with your creditors on your behalf.


Benefits of a Consumer Proposal You will be able to keep assets that might be lost in a bankruptcy;

You will receive protection from all of your creditors, including your bank, credit card companies, and the Canada Revenue Agency (“CRA”);

Your trustee will deal with your creditors for you;

You will receive the “Stay of Proceedings” that is the legal order that prevents your creditors from making any collection attempts. Collection calls will stop. Wage garnishment orders contemplated or in place will cease;

You will be able to consolidate all of your debts into a single, easy to make payment, so you won’t have to keep track of different payment schedules on all of your different debts;


Benefits of a Consumer Proposal The consumer proposal administrator will be paid out of the single monthly payment that you make into the proposal;

You are able to make additional payments or add a large payment in the middle of the consumer proposal if your financial situation improves so you can have the proposal paid off earlier;

If you are a director of an incorporated company you can continue to act as the director while in a consumer proposal, which is not possible in bankruptcy;

You will no longer have to pay interest charges that could be 30% or higher;

A consumer proposal allows you to avoid bankruptcy!


Rules of a Consumer ProposalYou must use the services of a Licensed Insolvency Trustee;

The creditors must end up better off than if filing bankruptcy; “Better off” can mean that payments are made over time or a third party agrees to pay a sum to the creditors only if the consumer proposal is accepted;

The debt must be consumer debt, so a business cannot file a consumer proposal.

However, a person who has a sole proprietorship business can file one;


Rules of a Consumer Proposal1. A person cannot owe more than $250,000,

excluding home mortgages.

2. The consumer proposal cannot be for more than 5 years;

3. As soon as a consumer proposal is filed all actions against the debtor, by law, must cease. This includes collection calls, garnishment and any legal action to collect the debt. Interest also stops accruing;


Rules of a Consumer Proposal1. Consumer proposals are considered accepted if,

within 45 days of the filing, a creditor has not objected. If any creditor objects a creditors’ meeting is required;

2. Creditors vote at the meeting with a simple majority of the dollars voted deciding on acceptance or refusal;

3. If the consumer proposal is accepted all the creditors, including the ones who voted against the proposal and the ones who did not vote, are bound by the terms of the consumer proposal;


Why Would the Creditors Want Someone to File a Consumer Proposal?

Creditors almost always support a consumer proposal because they do not want you to file bankruptcy as they would receive less money in a bankruptcy.

If you wish to set up a free consultation to discuss a consumer proposal, please contact us.


Consumer Proposal EligibilityIn order to be eligible to file a consumer proposal with your creditors you must be insolvent, which means you owe at least $1,000 to your creditors and are unable to repay your debts as they come due.

Your creditors also must vote to accept your proposal.

The vast majority of proposals are accepted, in part because your trustee, through his experience will draft a proposal that has the greatest chance of being accepted.

The main rule drafting a consumer proposal is your creditors must be better off than if you were to go bankrupt.


https://bankruptcycanada.com/bankruptcy/how-bankruptcy-works/

Consumer Proposal EligibilityThere are many factors to consider when deciding if you have consumer proposal eligibility:

• You must be insolvent;

• You must be a person, as a business is not eligible for filing a consumer proposal, unless the business is a sole proprietorship;

• Your total debts (not including the mortgage on your main residence) must be less than $250,000, (If you have debts of greater than $250,000 you may be eligible a Division I Proposal);


https://bankruptcycanada.com/division-proposal-commercial-proposals/

Consumer Proposal Eligibility• Must be able to maintain the payments as laid out in your proposal plan.

For example, your proposal might call for payments of $500 a month for the next 36 months, so you must have a stable income to maintain these payments as missing three payments on your proposal is a serious manner, and your proposal will be cancelled and your debts reinstated, and all payments made to the proposal will be lost;

• You must have no prior proposal proceedings (such as a Notice of Intention to file a proposal.


Debts Erased in a Consumer ProposalWhat Debts Can I Include in My Consumer Proposal?

When you make a consumer proposal you can include most of your debts.

Debts erased in a consumer proposal include:

Credit card debt;

Lines of credit;

Personal and payday loans; and

Income taxes owed.


Impact of a Consumer Proposal on Credit RatingWhen you file a consumer proposal your credit rating will automatically be set to an R7 rating, while if you file bankruptcy you will receive an R9 rating which is the worst possible credit so a consumer proposal does not have as dramatic an effect on your credit rating as a bankruptcy.

The record of your consumer proposal will remain on your credit report for 3 years after you receive your “certificate of completion” after making your final payment as required in your proposal.


Impact of a Consumer Proposal on Credit RatingAs a consumer proposal can last for up to 5 years, the record of your proposal can remain on your credit report for up to 8 years.

You can also complete a consumer proposal in only a few months by offering a lump sum payment which in turn means the record of your consumer proposal will only remain on your credit report for slightly more than 3 years.

When you receive your certificate of performance you can send a copy of this document to your creditors which will allow your credit report to be updated as soon as possible.


Life After a Consumer ProposalWhat happens once my consumer proposal is completed?

Congratulations!

You have worked steadily and have made all of your required consumer proposal payments and now your proposal has been successfully completed and your Life After a Consumer Proposal can begin!

It is great news that you have now made your last payment to complete the proposal.


Life After a Consumer ProposalTrustee Sends You a Certificate of Full Performance

Once you have successfully completed all of you consumer proposal payments your Trustee / Consumer Proposal Administrator will send you a Certificate of Full Performance document.It is very important that you keep this in a safe place as it is the proof that you have satisfied the terms of your proposal and that the debts have been discharged.


Life After a Consumer ProposalYour administrator will also send you, your creditors and the Official Receiver two documents known as the Statement of Receipts and Disbursements and a Notice of Taxation of the Administrator’s Accounts; these documents are set to close your file. This can take some time if there is a backlog in the system.


Life After a Consumer ProposalLife After a Consumer Proposal – Moving Forward After Your Proposal is Completed Now that you have dealt with your overwhelming debt you can begin rebuilding your credit moving forward. Your administrator will give you two counseling sessions that will give you the tricks and tools needed to rebuild credit and manage your money successfully in the future.


Life After a Consumer Proposal

No matter the cause(s) of your debt problem you should now have a better understanding of credit, debt, and managing money.

You should be able to better deal with your finances now because of what you’ve learned with your Proposal Administrator (Trustee).

If you are interested in speaking with a licensed insolvency trustee to learn whether a proposal could help solve your debt problems please contact us today.


https://bankruptcycanada.com/free-confidential-evaluation/

Life After a Consumer Proposal


consumer proposal - the #1 alternative to filing bankruptcy

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