Category: Consumer Proposals

An arrangement you negotiate with your creditors to repay a portion of what you owe is a proposal to creditors. In the law context, a “proposal” is a plan to settle your debts for a sum that is less than their whole amount.

One possible alternative to declaring bankruptcy is to propose to the creditors. There is usually negligible or no money left for the debtor’s creditors. When you make a proposition, the individuals you owe money to will receive something in return. Creditors are willing to entertain a suggestion because they believe that doing something is preferable to doing nothing.

Now that you understand the concept of a proposal to creditors, we will discuss the two types of proposals available to Canadian residents under the Bankruptcy and Insolvency Act (BIA). The first option is known as a consumer proposal. In contrast, the second is referred to as a Division I proposal to creditors.

Consumer Proposal for Clients With Debts Up to $250,000

In 1992, Canada amended the Bankruptcy and Insolvency Act to include consumer proposal provisions for the sole purpose of helping individuals cope with their obligations.

You may be eligible for a consumer proposal if you owe less than $250,000 in unsecured debts (excluding your primary dwelling mortgage). A consumer proposal filed by a married couple may include up to $500,000 in debt, not including mortgages.

You cannot submit a consumer proposal if your overall debt is more excellent than this threshold.

Proposal for Division 1: Individuals and Corporations

Under the Bankruptcy and Insolvency Act (BIA), a company or individual can submit a Division I application to reorganize their obligations.

Due to these differences, a Division I proposal is significantly more involved and expensive than a consumer proposal. Those with unsecured debts of less than $250,000 can file a Division I proposal. Still, most opt for the more consumer-friendly consumer proposal.

Consumer Proposals and Division 1 Proposals: Key Differences

While both programs can put a stop to collection efforts and wipe off unsecured debt, there are significant variances in the costs to participants:

• If creditors reject a consumer proposal, the consumer has more leeway to pursue other options. Rejection of a Division I plan constitutes an admission of bankruptcy. With a consumer proposal, there is no immediate bankruptcy if you cannot agree with your creditors.
• Your consumer proposal will become legally binding on your unsecured debts once you have received votes of approval from creditors representing a simple majority of the total amount owed to you. A majority in the number and the financial worth of a person’s obligations is needed to approve a Division I proposal. A smaller percentage of votes is required to support a consumer proposal.
• Division I proposals require creditors’ meetings. Consumer proposals require creditors’ meetings only if at least 25% of the debtor’s total monetary debt requests one. Unless an appointment is necessary, consumer proposals will be assumed to be approved.
• Consumer proposals allow for more liberal default conditions. A consumer proposal annuls a debtor’s debt three months behind on their payments. Creditors can now go after you for the original debt plus interest that the stay protecting you from them has been lifted. If the debtor in a Division I plan falls into default, they may raise the holiday until the debtor returns to court to approve the revised conditions.

Consumer Proposal vs. Division 1 Proposal in Toronto

Bankruptcy has a negative connotation, yet it is often seen as a last resort when a person’s or company’s financial situation has worsened to an extreme degree.

A consumer or Division I proposal can be a less drastic option (sometimes a commercial proposal). All of these alternatives involve using the services of a licensed insolvency trustee (LIT), much like in a bankruptcy. About the provision of the Bankruptcy and Insolvency Act that controls these procedures, the phrase “Division I” is used.

Contrary to what happens in a bankruptcy case, your assets will not be liquidated or seized if you file a proposal. While submitting a proposal could be advantageous for particular businesses or people, they must have the means to do so.

Are Division 1 Proposals Better Than Consumer Proposals?

Why would an individual submit a Division I proposal if it is more complex and expensive? A Division I proposal is the only method to avoid bankruptcy if your unsecured obligations (credit cards, lines of credit, and bank loans) total more than $250,000. You need the protection offered by the Bankruptcy and Insolvency Act (BIA).

Division I proposals typically have a five-year duration, though this may be extended under exceptional circumstances. On the other hand, you must finalize a consumer proposal in no more than five years. Both of these plans provide an early payoff option.

 

A consumer proposal is a form of debt reduction approach that is intended to assist consumers who are having difficulty avoiding bankruptcy. It is an arrangement that is established between a person who is insolvent and their unsecured creditors, which allows the insolvent person to pay a substantially reduced part of their debts.

Administrators of consumer proposals are required to carry out the tasks associated with consumer proposals. Find out what a consumer proposal administrator is and what they can do for you by doing some research on the topic.

What is a Consumer Proposal Administrator?

A consumer proposal administrator is a person in charge of running a Consumer Proposal, which is a way to settle the debts that you can file under the Bankruptcy and Insolvency Act.

By legislation, a consumer proposal administrator needs to hold the status of Licensed Insolvency Trustee. No one else in Canada is allowed to submit a consumer suggestion.

However, in order to file a consumer proposal, you will need to be directed to a consumer proposal administrator by the agency that advertised the consumer proposal in the first place.

What Are the Licensing Requirements for Proposal Administrators?

A consumer proposal administrator must be a LIT, or licensed insolvency trustee. In Canada, only licensed professionals are allowed to handle consumer proposals. No professional in the legal or financial industries is qualified to act as a debt consultant.

Licensed insolvency trustees are qualified for this position since they are certified debt experts who work with consumers and businesses in financial distress. Consumer proposals, Chapter 1 proposals, and individual bankruptcies are all part of these offerings.

Certified LITs hold credentials from multiple jurisdictions. They too fall under federal oversight. The Office of the Superintendent of Bankruptcy (OSB) keeps tabs on them to make sure they’re doing a good job and following all the rules and regulations of the profession. The regulations have been established to ensure that Canadians in times of need receive the assistance they require.

The Office of the Superintendent of Bankruptcy has authorized us to operate as consumer proposals administrators. You can look for Risman Zysman in their database as a trustee, and the same goes for any other company or trustee authorized to handle proposal administration.

Is Your Consultation Free of Charge?

We do not charge for consultations, and the client will not be expected to pay anything until we have successfully completed all of the steps necessary to submit his proposal to the government.

The government determines the rates at which we may collect fees. Our fees are deducted from what is ultimately awarded for the proposal. There are no supplementary payments made by debtors to the trustee. There will be no up-front or additional costs incurred for the proposal itself.

This is the standard operating procedure for all consumer proposal administrators, but not all financial advisors. No payments should be expected from you until an agreement has been struck.

Check Referrals and Reviews

People who have worked with our Licensed Insolvency Trustees and supportive staff may best attest to our professionalism. In order to supply the highest quality service, we are committed to hearing what our customers have to say.

We value our customers’ opinions and the time they take to provide them to us. We trust you will find their evaluations to be insightful and useful. The prospect of cooperating with you fills us with excitement.

Check Government Warnings & Don’t Be Pressured

While there has been a general decline in both complaints and inquiries concerning debt settlement organizations, the most common issues consumers have with these businesses continue to center on allegations of both misrepresentation and a failure to perform the service that was promised.

Debt settlement, debt management, debt arrangement, debt reduction, and debt consolidation are all terms that can be used to describe the same set of services. Some service providers may assure you that they may lessen the total amount of debt you have to pay off.

We usually send one follow-up email to make sure you don’t have any additional questions, but you should never feel obligated to sign up for any procedure.

Consult a Second Opinion if Necessary

Identify a qualified consumer proposal administrator, and familiarize yourself with the resources available through the government. Though getting a second opinion is always a good idea, it’s important that it comes from a trustworthy source. Three weeks is the average time it takes for a person to make a call.

It’s critical that you’re confident in your choice for handling your debt. We advise everyone to get as much information as possible before making a choice.

Your trustee in a consumer proposal will want to know how much of an offer you can make to your creditors based on your financial situation. To help your creditors decide whether to accept your offer or ask for more money, the creditors will include a copy of this budget in the statement of affairs package you send to them.

In this article, I’ll discuss the budgeting process involved in submitting a consumer proposal and how doing so can help you regain financial stability.

Proposal Filing Cash Flow Considerations

The thought of ever having enough money is difficult to entertain when you’re having money problems. Today, it’s possible that your income is insufficient to cover your regular monthly outlays, which likely include things like rent or mortgage, car payments, food, clothing, utility costs, insurance, and so on. Usually, this happens when debt payments consume a large portion of an individual’s income.

Some people turn to credit cards when money is tight, but paying just the minimum each month won’t help you get out of debt.

You must devise a strategy to deal with your debts to alleviate your anxiety and start over with a clean slate. However, a consumer proposal can ensure that your new plan is financially sustainable.

Why Budget is Essential

The primary concern when evaluating a consumer proposal is whether or not the monthly payments are affordable.

Your trustee will evaluate your monthly expenditures to ascertain if the cost of your consumer proposal is manageable.

A consumer proposal will shield you from creditors and halt interest fees, but it must provide more for your creditors than bankruptcy would. However, this assumes that you have sufficient financial resources to meet the monthly obligations. For this, you’ll need to consult your financial plan.

Your trustee will analyze your finances to determine which costs will be eliminated (such as credit card payments) and where else you can reduce spending to make ends meet.

Uncertainty about whether or not you can afford the proposal’s monthly payments is likely to cause you stress. As the law only allows you to miss two monthly payments throughout the proposal, skipping payments is risky.

Any agreement is null and void after the third missed payment. Once your proposal is deemed null and void, you no longer enjoy the protection from creditors that it provided.

That’s why it’s crucial to plan and be forthright with your trustee about your financial situation. You can ensure your proposal is feasible from the get-go with the help of a budget, increasing the likelihood that you will be awarded your Certificate of Completion and, in turn, pay off all of your outstanding debts.

Preparing a Consumer Proposal Budget

To assist your trustee in preparing your consumer proposal, RismanZysman will send you a link where you can enter some of your income and expenses. Some things you’ll want to include in your budget, though, are the following:

Income Items

• Pension income
• Employment income
• Government benefits (child tax, welfare, disability)
• Child support or alimony
• Other income

Note: Only your after-tax net income is required if you are self-employed or run a business after paying necessary expenses. When reviewing your consumer proposal, your trustee will need this information to consider your household budget.

Expense Items

Home

• Cable and Internet bills
• Furniture
• Telephone or cell phone bills
• Property taxes
• Rent or mortgage payment
• Utilities
• House insurance

Travel Costs

• Gas
• Car repairs and maintenance
• Vehicle insurance
• Car loan and lease
• Plate renewals
• Public transit

Living Expenses

• Laundry/dry cleaning
• Grooming/toiletries
• Clothing
• Food & groceries
• Alcohol
• Entertainment
• Smoking

Health Costs

• Prescriptions
• Dental
• Life insurance
• Disability insurance

Other Expenses

• Memberships
• Gifts/allowances
• Child care/babysitting
• Pet care
• Banking fees

Set aside as much money each month as you think you’ll need to pay for annual expenses like memberships, insurance, or holiday gifts.

Getting Rid of Current Debt Repayment

Your consumer proposal budget does not include monthly debt payments other than secured loans like your mortgage or vehicle finance. If you want to keep these assets, you must make these payments. Thus they’re in your budget.

A consumer proposition eliminates unsecured debt. Your negative budget is likely due to credit card minimum payments, high-interest installment loans, and payday loan repayments.

When proposing to creditors, your trustee will consider your income minus costs before debt repayment. This number is optimistic. If not, your trustee can suggest ways to lower your expenses, or you can return a costly car to balance your budget.

Your trustee needs a list of your debtors. Your trustee will determine the minimum proportion based on your debts and creditors. You can compare this to your budget to determine what you can afford.

Why a Consumer Proposal is Preferable Versus Bankruptcy

You may be skeptical that this is a prudent financial move once you realize that your debtors will receive a larger payment.

A person’s ability to remain bankrupt is tied to their disposable income. According to bankruptcy laws set by the government, the more money you make, the longer you will have to make payments.

If you declare bankruptcy for the first time and have any surplus income payments, you must remain bankrupt for the full 21 months. There is no room to adjust the duration of this time frame. The result may be a monthly bankruptcy payment that takes up a large chunk of your income.

The maximum repayment period for consumer proposals is five years. Paying over the entire 60-month period can reduce your monthly instalment amount. In the future, this may determine your financial stability and ability to meet your basic needs.

Post-Consumer Proposal Budgeting

After filing your consumer proposal, you will have to go to two credit counselling sessions. One of these sessions will be about how to make a budget and stick to it.

When you file a consumer proposal, the main goal is to get rid of your debt. The second goal is to make sure that you don’t have to rely on credit to pay for everyday living costs in the future.

A consumer proposal can help you start over, and you can now work on saving money for the future.

Talk to Us About Consumer Proposals!

A consumer proposal can remove your debt, allow you to preserve your assets, and help you get back on track financially.

Contact us if you need help getting out of debt, and we’ll give you a free debt assessment during which we’ll look over your finances, advise you on how much you can afford to pay and help you formulate an offer to present to your creditors.

Under Canada’s Bankruptcy and Insolvency Act, a consumer proposal is a legally binding agreement between a debtor and his creditors to settle the bankrupt’s unsecured debts.

What then occurs if two parties share responsibility for the same debt? Couples can submit combined consumer proposals to consolidate debt.

Do you both have debts? Do either of you need to cancel your debts? Would a consumer proposal be the best solution for both of you? Let’s deal with some basics first.

What Is a Joint Consumer Proposal Filing?

Joint consumer proposals are allowed where the debts of two or more people are identical or nearly identical.

To grasp this term, we must consider two elements—similarity and significance.

Similarly, both parties may be responsible for the same debt repayment. If a husband and woman share responsibility for a debt, such as a mortgage or credit card, then the couple must pay equally.

Substantially raises some complex questions. Despite the lack of a precise legal definition, the term “basically” has signified that 90% or more of the debts between the two parties are identical. This is not strictly enforced, but it serves as a guideline. When dealing with joint or combined debts, filing a consumer proposal jointly makes the most sense.

Each individual must meet the eligibility requirements for a consumer proposal to file a combined bid. So, it’s up to every single one of us to:

• Owe more than $1,000 to creditors (even as a co-borrower);
• Be unable or unwilling to pay bills as they become due; and
• Own assets (what they own) that, if sold, wouldn’t generate enough cash to cover their debts

Joint Proposal Examples

You can only decide whether or not to file jointly by thinking about what is best for the family and their creditors. Every situation is different, and whoever you work with to deal with your debts should show you all of your options.

Here are several scenarios in which it would make sense to file taxes as the following:

• Husband and Wife: The family is responsible for all the debts, and the money for the proposal payments comes from the family’s budget. We suggest filing one procedure and saving money on administration. By doing this, you will pay more of the money to the creditors.
• Parent and Child: Submit a consolidated plan to resolve the issue if the parties are cosigners on the debt.
• Business Partner: In this case, the parties will have a more challenging time, but it is still possible, given that they do not have a high personal debt load on top of their joint commercial debt.

Joint Filing Advantages & Disadvantages

Joint Filing Advantages

• Consumer proposals require a couple to have at least $500,000 in debt, up from $250,000 for an individual (excluding a mortgage on their principal residence).
• Reducing some expenses allows you to negotiate with your creditors while keeping your payments manageable.

Joint Filing Disadvantages

• You will restrict your capacity to borrow for some time since a consumer proposal will be listed on both of your credit reports;
• Like any other joint responsibility, both parties must contribute equally to the payment. So if one partner doesn’t pay, the other must. Otherwise, the trustee will cancel the proposal after three missed payments.

So do you think you should submit a combined proposal? A consumer proposition cannot be made mandatory. Even if one spouse chooses to file, the other is not obligated to do so if they do not like to do so.

Can I Joint File a Consumer Proposal?

Yes! However, a consumer proposal cannot be filed by an individual consumer. Find out if a consumer proposal is a right choice by scheduling a free, no-obligation consultation with a LIT from Risman Zysman Inc.

Who Can File a Joint File a Consumer Proposal?

If you and your partner’s debts are roughly equal, you may qualify to file a joint consumer proposal. You cannot include debts accrued during the bankruptcy process in the consumer proposal since the proposal filing date will be the same as the bankruptcy filing date.

If you co-sign a debt or guarantee its repayment, you are equally accountable for its compensation. It’s common for a married couple to do this, though it doesn’t always happen that way.

Are Joint Consumer Proposals Right for Me?

Before you can figure out how to get out of debt, you need to know where you stand. Whether you want to consider a debt settlement, credit counseling, debt consolidation, or a consumer proposal, you must examine your finances and determine your options carefully.

Most people would instead file a joint consumer proposal than a single one because it lets them include more debt in the proposal. If you file as a single person, you must have debts of at least $250,000. You can have up to $500,000 in debts if you file as a couple.

You can also save money on administrative costs if you file a joint consumer proposal. Most importantly, a joint consumer proposal helps you save money that you can use to pay off your debts. The time between payments gets shorter when you pay more toward your debt.

On the other hand, both people who filed a joint consumer proposal are responsible for paying the agreed-upon amount.

For example, if your proposal calls for a payment of $1,500 and you and the other filer agree to pay $750. You will have to make the difference if the other person can’t make the payment.

Also, they will probably reject your proposal if you don’t pay the missing amount.

What Is Your Best Option?

Consumer proposals are better than bankruptcy if you can pay your creditors monthly and don’t want to lose your assets. But your Licensed Insolvency Trustee can help you determine which option is best for you and your debt.

Once your eligibility has been checked, a Consumer Proposal can only be legally handled on your behalf by a Licensed Insolvency Trustee, such as Risman Zysman Inc. Ask a company if they are Licensed Insolvency Trustees before submitting a Consumer Proposal, whether online or in person. The law says they have to hire a third-party Trustee, which could add to costs if they aren’t.

We’re here to help you find the best answer. At Risman Zysman Inc., we offer a free, confidential, no-obligation consultation over the phone at (416) 222-4600 or (844) 222-6824.

Together, let’s restore your financial freedom.

A consumer proposal is a reliable and safe way to escape the “debt trap” but it can also be one of the most affordable when it comes to monthly payments. A consumer proposal offers 2 main benefits over other debt repayment solutions:

• Interest-free repayment period, and
• Debt forgiveness

To explain this, we have to consider a typical debt scenario and compare the financial implications of 4 different methods to get rid of debt, including a consumer proposal. A consumer proposal focuses on non-collateralized loans and reduces your recurring monthly payment significantly.

For instance:

• John owes $30,000 in consumer debt, a reasonable amount for the average borrower.
• His monthly minimum payments average $600 a month.
• John is single and earns $1,600 a month after taxes.
• John does not own any assets that can be used as collateral to secure the debt.

In all repayment plans, we assume that John would prefer to be debt-free within a period of 5 years.

Repayment Options

Repay on his own – pay at least $800 a month for 5 years.

If John wants to get rid of his credit card debt within 5 years, he will have to up his monthly repayments to at least $800. That figure is equal to half his monthly salary. He will have to pay this amount every month for the entire duration of 5 years. Furthermore, he will not be able to take up any other loans during this period as this will raise his interest payments significantly.

Debt Management Plan – pay at least $500 a month for 5 years.

A debt management plan, filed via a debt or credit manager, requires that you settle all your debts. You can get interest savings, which is why John’s monthly payments in our example reduce by $300 a month. However, the total principal payments that you must make remain the same.

Personal Bankruptcy – cost $285 a month for 21 months.

Bankruptcy costs are not determined by the amount of debt you have, but rather what assets you own and how much you make plus a fixed contribution to cover the value of administrative costs and non-exempt personal belongings. With a higher income, John would need to pay higher income payments of roughly $285 per month, assuming his income stays the same. As a first-time bankrupt with additional income, his bankruptcy would last for about 21 months, after which his debts would be cleared, and he would be considered completely debt-free.

So in the case of John’s bankruptcy, he would be debt-free sooner rather than later, and he would pay significantly less when compared to a debt management plan.

Consumer Proposal – cost $120 – $175 a month for 5 years.

In John’s case, he wanted to be completely debt-free within 5 years. He is required to file bankruptcy as soon as possible if he is to achieve his goal, but if he wishes to lower the monthly cost of eliminating his debt, he has to consider a consumer proposal.

A consumer proposal is a proven method of negotiating a payment arrangement with your credit to repay some of your debt and spread the payments into monthly installments that are paid over time. The cost of this arrangement is determined by how much you can afford to pay and how you negotiate with your creditors. Creditors often expect to get more money from you than they would if you filed for bankruptcy because you will be making small payments over an extended duration of time.

Moreover, some creditors expect to recover a minimum amount of money on their loans. Some big banks (such as CIBC and RBC) usually plan to recover at least 30 cents for every dollar they lend out. While every case is different, considering everybody is paid different and creditors differ, in our example, John would likely be able to negotiate a repayment schedule costing between $120 and $175 a month for 5 years.

Obviously, this is a significantly lower amount that what he would have paid with any other debt management program. It is because of this that most debt relief programs have a success rate of just 43%.

By picking a consumer proposal over bankruptcy, John would be choosing to forfeit getting out of debt sooner in order to reduce his monthly repayments. In doing so, his overall costs over the entire period will be higher when compared to bankruptcy, but they will still be much lower when compared to a debt management plan.

This example proves that in most situations where debtors have huge debts, the debt forgiveness coupled, with an interest-free repayment duration, make a consumer proposal the best solution to get rid of your debt in an affordable manner.

The fact is that a consumer proposal may not be ideal for everybody, but if you are serious about getting rid of your debt, it’s definitely worth considering.