Category: Consumer Proposals

How Voting on a Consumer Proposal Works

A consumer proposal is one option to consider when you can’t pay your debts. This type of proposal lets you negotiate a payment plan with your creditors. Voting on a consumer proposal is an important step in the process – find out how it works and how you can be accepted!

What happens upon filing?

Consumer proposals can be filed with a licensed insolvency trustee (LIT) when an individual or family is struggling with debt and is unable to repay their creditors in full. One must complete mandatory pre-filing counseling sessions with a LIT before submitting their proposal. 

When your licensed insolvency trustee files the proposal, an automatic stay of proceedings is put in place. This means that creditors are not allowed to take any legal or collection action against you while the proposal is being reviewed.

A consumer proposal functions as an alternative to bankruptcy, by offering creditors a percentage of what is owed to them, typically between 30-70%, depending on the circumstances. If accepted by the creditor, the individual is then legally obligated to make monthly payments over a set period, typically 60 months, to repay the remainder of their debt.

How voting works

In a nutshell, when a person files a consumer proposal, they are essentially asking their creditors to vote on whether or not to accept a proposal that would settle the person’s debts for less than the full amount owed.

If approved by at least 66 2/3% of the creditor votes, the proposal is binding on all of the person’s creditors, regardless of how much they may have individually voted against it. So even if one or two creditors vote against it, as long as 66 2/3% of all creditors agree to it, then the proposal will go through.

The voting process usually happens over about two weeks, after which the administrator will tally up all of the votes and report back to the debtor and the LIT.

What is the voting period?

Once the consumer proposal is filed, your creditors will be given 45 days to vote on the proposal. This includes weekends and holidays. Creditors can vote by mail, phone, or online.

How creditors could vote

A creditor can vote in favour of a proposal, or against it, or abstain from voting. They can also vote to accept your proposal but with alternative terms of the agreement, not bother voting at all but will submt a proof of claim, or do nothing at all.

For the proposal to be accepted, at least 50% of the creditors (by dollar value) must vote in favour of it.

The creditor’s vote will determine whether the proposal is accepted or rejected. If a majority of creditors do not approve the proposal, it will be rejected and the debtor will be required to file for bankruptcy.

Who gets to vote on a proposal?

According to the Bankruptcy and Insolvency Act in Canada, each creditor gets one vote for every dollar of debt that the debtor owes. In a consumer proposal, the debtor is offering to pay back a portion of what is owed to creditors. As such, each creditor will get to vote on whether or not to accept the proposal. If a majority of creditors (by dollar amount) accept the proposal, it will be binding on all creditors.

For a vote to be counted, the creditor must submit a proof of claim to the licensed insolvency trustee. The proof of claim is a document that outlines how much the debtor owes the creditor.

Related parties can submit a claim in the proposal to vote. However, they can only abstain or vote against the proposal. A related party is anyone who is closely connected to the debtor or the proposal. This includes, but is not limited to, spouses, parents, grandparents, siblings, children, and in-laws.

Will a creditors’ meeting be held?

A creditors’ meeting will be held if the majority of your creditors (by dollar amount) file a proof of claim. If a majority of your creditors do not file a proof of claim, no creditors’ meeting will be held and the consumer proposal process will move forward.

Creditors’ meetings are presided over by the trustee and are an opportunity for creditors to ask questions and vote on the proposal. To pass, the proposal must be approved by a majority of the creditors who vote. If the proposal is not approved, the debtor may continue to make payments under the original agreement or may choose to file for bankruptcy.

When is a consumer proposal accepted?

If there is less than 25% of creditors requested a meeting, your proposal is automatically accepted in 45 days. This is regardless of the votes that the administrator received for your proposal.

Do creditors often reject a consumer proposal?

Although creditors may initially object to or reject a consumer proposal, in many cases they will eventually agree to the terms of the proposal. This is because creditors know that if the court approves a consumer proposal, they will receive at least some payment on their outstanding debts. 

Creditors also typically agree to a consumer proposal because it offers them greater certainty than if the debtor were to declare bankruptcy. In bankruptcy, creditors would receive nothing unless the debtor had assets that could be liquidated. 

Thus, while it is not uncommon for creditors to initially reject a consumer proposal, ultimately most proposals are approved by creditors and go on to be successfully completed. If you are considering filing a consumer proposal, we recommend you speak with a licensed insolvency trustee to learn more about the process and what to expect.

Does A Consumer Proposal Affect My Spouse?

Will A Consumer Proposal Affect My Spouse?

When spouses find themselves going through financial hardship, they often ask questions about how their debts may be affecting each other or how the other spouse is not or is involved when they file for a Consumer Proposal.

What Are Joint Debts?

Before going over what will happen when one person in a partnership files for a consumer proposal, it is important to gain an understanding of joint debts.

A common-law relationship or a marriage does not mean you are legally responsible when it comes to your partner’s debts.

This means you are held responsible for any debt that falls under your name, while your spouse will be responsible for any debt under their name.

However, if you co-signed on debt or you guaranteed your partner’s debt, then you will be held liable to repay these debts in full if your partner has stopped making payments.

Some people are under the assumption that a joint debt will mean they are only responsible for paying back 50% of the debt. Unfortunately, this isn’t true. If you co-sign on a debt, you are both held equally responsible to repay the debt in full. In practice, the creditors of the defaulting spouse will expect the spouse that has co-signed to carry on making monthly payments on a loan.

In some cases, supplementary cards will include fine print that states that when you use the card, you become automatically liable to pay for it. This means if you are using a “secondary” credit card and your significant other is the main cardholder, you may be held liable when it comes to the entire balance owing on the card.

Joint Debt Types

While just about any type of debt or loan can be considered joint debt, here are some of the more common examples:

  • Credit cards
  • Mortgages
  • Loans
  • Bank accounts
  • Lines of credit
  • Car loans
  • Bank overdrafts

What Happens To Any Joint Debts If I Am Divorced Or Separated?

If you are divorced or separated from your spouse, but you have joint debts, creditors can hold your ex liable for repayments on debts if you decide to file a Consumer Proposal. Joint debt won’t fall away when you get divorced or you are separated. Creditors are not concerned whether you are separated or still together, you are still held liable to repay your debts.

Can Creditors Go After Your Spouse?

Now that you have a better understanding of what joint debts are, you may be wondering what will happen when one person in the relationship decides to file a Consumer Proposal?

A Consumer Proposal is described as a debt-settlement agreement that is legally binding and filed with a Licensed Insolvency Trustee. The agreement involves repaying a percentage to your creditors of what is owed, and they exchange this for “full” debt forgiveness. Consumer proposals can only be used for unsecured debt that you are responsible for paying back. This will include debts that you are owing and debts that you jointly owe with your spouse or another person.

If you don’t have any joint debts (unsecured) with your partner, then they won’t be affected in any way when you file a Consumer Proposal. This means your creditors are not permitted to try and contact your spouse when it comes to your debts. However, your creditors will and can contact your partner if they guaranteed the debts or co-signed on the debts.

The most common examples of joint unsecured debt include credit cards and lines of credit, but can sometimes also include car loans, bank account overdrafts, or bank loans.

When you have unsecured joint debt, your partner can be held liable to settle the debts in full even though your debts are being compromised due to your consumer proposal. While the spouse that is filing a consumer proposal may be shielded from any future collection actions (by a stay of proceedings), the other spouse won’t be unless they also file for bankruptcy or a consumer proposal.

If your joint unsecured debt is significant, first consult with your Licensed Insolvency Trustee, since it may be more sensible for your spouse and you to file for a Consumer Proposal. You can also choose to file a joint consumer proposal. There is also a third option which will involve one of the spouses filing for Bankruptcy and the other filing for a Consumer Proposal. Your trustee can provide the best advice on how you should both proceed when you are struggling with debt.

How To Handle Joint Debt

When you file a Consumer Proposal, any joint creditors can go after your spouse for collection. Your best course of action to ensure your spouse won’t be held liable for any of your debts is to call each of the financial institutions before you file a Consumer Proposal. When you co-sign on a mortgage, loan, or credit card, you need to gain an understanding of how you will be held responsible for that debt.

Will Your Spouse Be Involved In The Consumer Proposal Process?

There will be a few ways that your partner will be involved when you decide to file your Consumer Proposal.

Before filing the proposal, your Licensed Insolvency Trustee will first review your financial situation. This will include your income, the income of your spouse, your family expenses, your assets, and any joint assets. This overview of your finances and household budget will be the determining factor in whether a Consumer Proposal is right for you. This snapshot is also used to determine what you will be able to afford when it comes to repaying your creditors and the amount your creditors can expect you to pay back.

Let us now explain further in detail the financial assessment of married couples to assess what it usually included.

What Will Happen To My Spouse And Our Marital Assets?

You will keep assets that you own in your Consumer Proposal. You will be asked to provide information on any asset (you have an interest in), their value (approximate), and any debt that is secured against the assets to your Licensed Insolvency Trustee. Your creditors will be expecting to receive “value” for equity in assets that you own to form a part of your settlement offer.

If you have jointly owned assets, this means only your shared interest in this asset or your half is going to be considered when working out a reasonable or fair offer to the creditors you owe money to. Keep in mind that in consumer proposals, you get to keep assets, but you will have to compensate the creditor for the net value.

If your spouse owns assets solely, these will not be included when you are filing for your Consumer Proposal unless you have only recently transferred this asset or assets to your partner. You will need to declare whether you have transferred any of your assets within the last 5 years. Any transfer that was made below “fair market review” can be reviewed and then can be adjusted or reversed when it comes to your consumer proposal settlement. Any adjustments might be used to account for differences that you might have received if you sold the asset at a fair market value. But when your spouse has investments, savings, or a car that they have sole ownership of, these are assests that will not be impacted by your Consumer Proposal.

One of the most significant assets that are jointly owned by most couples is usually their matrimonial home. To keep your property, you have to compensate your creditor when it comes to your share for any equity that is in the property and to carry on making your mortgage payments every month. The consumer proposals won’t deal with any secured debt such as a mortgage. It is also common for consumer proposals to state specifically that you are required to carry on paying all your secured creditors and it will be outlined in the agreement that you have with them.

If you can still afford your payments on your mortgage, and the property in worth is less than what is compared to what you are owing, then you won’t be held liable for equity compensation to the creditors within your Consumer Proposal.

But when your property has a value that is less than what you are owing and you can no longer afford to keep up with your monthly mortgage payments, you can choose to give up your home. If there are shortfalls, your mortgage lender will be able to file their own claim within your Consumer Proposal. In the current real estate market, these cases are rare, yet they can still happen when you have a HELOC (home equity line of credit) against your property or a big second mortgage.

Does The Income Of My Spouse Impact A Consumer Proposal?

As mentioned earlier, when meeting with a Licensed Insolvency Trustee, they will first review your current financial situation, which will include your household income. The trustee is going to ask for proof of your spouse’s income to help determine whether your income for your household exceeds the government-set threshold. This is an amount that is called the “surplus income limit” and is the income amount that the government believes families require to maintain reasonable standards of living in Canada. It will also be based on the size of the family and this amount will increase annually for the purposes of inflation.

If your household is earning more than this threshold, then you will be regarded to have “surplus income”. This is a formula that is used for people that file for bankruptcy. However, to make sure your Consumer Proposal provides more than just bankruptcy, your trustee will first perform a calculation for surplus income.

When your spouse decides that do not want to provide proof of their income to your Licensed Insolvency Trustee, that is fine, but, this might increase the overall amount you will be required to offer in the consumer proposal. When your spouse has refused to disclose what they are earning, the trustee will adjust the surplus-income calculation according to the government rules. This will typically increase the surplus income amount payable under the OSB (Office of the Superintendent Bankruptcy) guidelines and ultimately the overall costs of your Consumer Proposal.

Will A Consumer Proposal Impact My Spouse’s Credit Rating?

If you file a consumer proposal it won’t be recorded on the credit report of your spouse, even when you have joint debts. Your Consumer Proposal will only be reported to credit bureaus under your name, which means it cannot affect the credit rating of your spouse or their score.

However, keep in mind that when you have jointly responsible debts, your Consumer Proposal will be dealing with your liability. This means your spouse is required to carry on paying for the joint debts unless they decide to also file for either bankruptcy or a Consumer Proposal.

Will I Still Be Allowed To Use My Spouse’s Credit Cards?

Yes, you will still be permitted to use supplemental cards to your partner’s credit cards while you are in a Consumer Proposal. But you must first ensure what the nature is of these supplemental cards.

For example, if you used these supplemental cards before you filed a Consumer Proposal, you need to make sure you will not be held liable for the debts of the credit card which you can find in the agreement terms relating to the credit card. If you are held liable, this debt will be listed on the proposal, which means your spouse will have to carry on paying for it.

An Individual Consumer Proposal Vs. A Joint Consumer Proposal

If your spouse and you have significant joint and personal debts, it could be a sensible approach to file for a joint Consumer Proposal. When filing a joint Consumer Proposal, it may help you to save a bit of money and effort when you file together. Once the agreed-upon amount is paid to all your creditors, you can both be forgiven or discharged from a balance owing on your debts.

However, it is important to know that a joint Consumer Proposal will impact you both when it comes to your credit score and your credit reports. The credit bureaus report the proposals as an R7 rating that will remain on both your credit reports for 3 years after the completion of the proposal. This could make it harder for you or your spouse to take out a loan or a line of credit until this proposal is cleared off both your reports.

If your partner is not carrying a lot of debts other than joint obligations, you should rather file your Consumer Proposal on your own. This means your spouse will only be held liable to pay back a portion of the joint debt that is owing. In this situation, you can decrease the overall debts that you owe, and your significant other won’t be taking a knock when it comes to their credit rating.

Obtain Advice From An Experienced Licensed Insolvency Trustee

When you have concerns or any questions about how consumer proposals may impact the other spouse, consult with a Licensed Insolvency Trustee to review your situation. Every personal and family scenario will be different and will require a unique customized solution.

What Happens at the Meeting of Creditors During My Proposal?

What Does It Mean To Host A Creditors’ Meeting For My Proposal?

Most clients I work with wonder whether they have to actually meet with their creditors, and the look of fear on their faces is oftentimes evident. Fortunately, in most instances, no direct meeting ever takes place, but I always warn clients that the possibility does remain. Below, I will discuss what happens at a creditors’ meeting and what it means for you.

When Is A Meeting Called For A Consumer Proposal?

The Administrator of the proposal is the one required to call a meeting of creditors according to the Bankruptcy & Insolvency Act if:

  • the creditors holding at least 25% of the value of debts wish to host a meeting, or
  • the government instructs that a meeting is required.

What Is The Purpose Of Asking For A Meeting?

A meeting is the only way that a creditor can make their displeasure known to all those present. Even if a creditor votes against your proposal, it doesn’t count against you unless an official meeting was held. Though creditors may request a meeting, one is only held if the creditor themselves holds at least 25% of the claims owed.

What Happens At A Meeting?

Consumer proposals are very rarely, if ever, the purpose of these scheduled meetings. In truth, most meetings are held if a certain creditor wants to vote against a proposal and have their displeasure noted on record. This means that meetings are usually held to count votes.

The law requires all meetings to be scheduled at least 21 days before the official voting period. This is to ensure that there’s enough room for negotiating the terms of the proposal with the consumer.

Usually, the meetings provide an outlet for creditors to require the consumer to pay a higher amount of money than is set forth in the proposal. The final verdict is in your hands if the meeting is officially scheduled.

You can either;

a) propose a compromise or

b) accept the deal offered by creditors

It is also possible to negotiate a deal before the official meeting date is set. The new proposal is easily carried out with a single sheet of paper and if signed by all parties, it goes straight to the trustee’s office for processing. Fortunately, these steps are easily carried out using phone or email.

Though meetings can actually take place, they very seldom do. In most instances, both parties work together to negotiate better terms for the proposal and it is possible to do all of this without having to gather for an official meeting of the creditors.

Options to Pay Off Your Consumer Proposal Early

Pay Down Your Consumer Proposals Early With These 4 Options

One of the best and safest debt consolidation options is a consumer proposal. It’s an alternative to declaring bankruptcy and is initiated when a business or person lacks the capacity to repay their debt. It describes how a person or organization is supposed to pay back their debts to creditors.

Typically, the debtor pays money in monthly installments over an agreed period. Because payments are fixed throughout the duration of the proposal, a consumer proposal is a reliable method of debt repayment. Furthermore, once creditors accept your plan, they cannot change the terms.

That shouldn’t however mean that you should take 3 years to pay a debt you can pay in 2.5 years. If you can pay earlier, why not? It will give you financial freedom and peace of mind. How so?

Granted, most times, people have no interest in paying off consumer proposals early for the sole reason that they are interest-free loans. Well, what if we told you that the earlier you pay, the earlier you can speed up the process of rebuilding your credit?

Not just that, but early payments can also save you from the annulment of your proposal, which is bad because it reinstates all the debts you are trying to pay off. What does that mean? — That if you’re unable to pay for 3 months, your consumer proposal can be thrown out of the window and you could lose your assets.

Clearly, making 1 or 2 payments in advance can go a long way in case you have emergencies that leave you broke. It will give you the peace of mind and financial freedom you need to thrive.

It’s also worth noting that consumer proposal administrators get a percentage (based on a government-set rate) of the proposal payments they give to the creditors. Although it has no effect on their overall payment, the quicker you pay, the quicker they get paid.

We however don’t pressure customers to settle a proposal early. We would much rather you maintain a sound monthly spending plan during the duration of the project than worry about paying it off sooner. Nonetheless, if you can manage to pay earlier, we cannot dissuade you since it’s wise. Here are 4 ways to pay off your proposal early:

Pay Every Two Weeks

If your proposal payment is $300 per month for 60 months, instead of paying $300 a month, you could pay $150 after every 2 weeks. By choosing to pay $150 every two weeks, you will add one extra monthly payment to your yearly total. You would therefore finish your loan in 4 years and seven months other than five years.

Pay a Little More Each Month

You could take a part-time job to help you clear your loan faster. You could also be lucky to make extra money from side hustles and business deals. If that’s the case, you could add a bit more to your monthly payments.

Instead of paying $300, you could pay $325. In doing this, you will shorten your proposal time will be shortened by more than 7 months. After all, the extra $25 every month, works up to an additional $300 annually.

Lump-sum Payments

Consider making a lump sum payment to shorten your proposal if you get a tax refund or a bonus from work.

Sell Your Home

If you have some equity in your home but not enough to refinance and pay off unsecured debts like credit cards and lines of credit, a consumer proposal is the preferred debt relief alternative. Most people decide to strike an agreement with their creditors to pay monthly payments equal to the equity because they want to keep their homes.

What transpires, then, if such circumstance changes? You may be moving or decide to downsize. If that’s the case, you might opt to sell your house at some point throughout your proposal so that you can settle your consumer proposal faster. Because consumer proposals leave you in charge of your assets, selling your home is permitted.

Paying Off Your Consumer Proposal Early FAQs

Should You Withdraw Funds From Your RRSP To Settle a Consumer Proposal Sooner?

Similar to choosing to cash in an RRSP to pay off debt, this choice is difficult to make. There are numerous monetary repercussions to take into account. These include:

  • To fully pay off your proposal, you must withdraw more money than what is owed to your creditor because any withdrawals will be subject to taxes.
  • If you participate in an employer contribution plan, cashing out your RRSP may make your employer stop making matching payments until you make up the lost funds.
  • If your RRSP has good returns, it makes sense to leave the investment alone rather than repay an interest-free consumer proposal.
  • Withdrawing money now could put your retirement at risk.

Unless you have a very urgent need for credit in the near future and wish to settle your consumer proposal now, we generally do not advise choosing this option.

Should You Take Out a Loan To Pay off a Consumer Proposal?

Although it may be difficult to believe, some businesses may actually offer to lend you money to pay for your consumer proposal. Loans for consumer proposals are encouraged as a quick way to raise your credit score.

Sounds good? Not so fast! We can summarize the issue with this one with one simple word: interest. There are no interest charges while using a consumer proposal but on the flip side, you have to pay interest on a loan.

Even if the lender wants to maintain your current monthly payments, you will still have to pay interest, which means you will have to make payments for a lot longer. That’s why we normally advise you to run the numbers before deciding whether to borrow money to pay off a proposition.

Make sure you’re not paying interest rates of 20%, 30%, or higher throughout the course of the loan. There are trustworthy mortgage brokers that can assist you in creating a plan to rebuild your credit, but an unsecured loan is typically not the best option.

Remember: A consumer proposal should give you a fresh start rather than pile more debt on your table!

What Happens If My Creditors Reject My Consumer Proposal?

Creditors Rejected My Consumer Proposal: What Happens Next?

Though consumer proposals do get rejected on very rare occasions, not to worry if yours is not accepted! After filing a proposal as a consumer, your creditors have 45 days to take a vote on the proposal submitted. Creditors may choose to take one of the following actions after mulling over the terms of your proposal:

  • Accept every term you’ve provided, including the length of time you’ll be making payments for.
  • Vote against your proposal and reject it completely.
  • Hold a meeting after rejecting your proposal.
  • Not do anything at all.

Votes are only counted if a creditors’ meeting takes place and that’s the only time when your creditors may reject your proposal terms. However, if no meeting is held, that makes your proposal automatically accepted. Many consumers find this arduous process helpful because it allows them to get a word in and renegotiate the terms of their debt.

One Vote Against A Proposal Is Not The End!

Whether consumer proposals are accepted or rejected requires all creditors to vote on their answer. For every dollar owed, a creditor is allowed one vote. This means that if more than half of the creditors vote in favor of your projected proposal, the one vote against holds no meaning. There’s only one opportunity for a creditor to have major sway in whether or not your proposal is accepted, and that’s if they own more than 50% of voting claims filed.

What Happens If The Majority Votes Against Me?

Even if the majority of the creditors are not in favor of your proposal, it doesn’t necessarily mean the end of the line for you. Creditors will more often than not ask for an amendment to the proposal because it allows them to prevent you from filing for bankruptcy. When you file for bankruptcy, it means the creditors receive even less money than what’s outlined in your proposal. Usually, the amendment requires you to pay an additional few dollars each month, or they may opt to alter the length of the proposal’s payment terms. Do bear in mind that your proposal can’t last more than 5 years or 60 months. Should you agree to the amendments asked for by your creditors, they will accept your proposal as revised. Even if you choose not to accept the newly revised terms, they can make a counteroffer to you.

There are several steps that you can take in the odd event that your proposal is altogether rejected.

  • Renegotiate the proposal terms such as the length of time that payments are made for.
  • Completely withdraw the proposal and choose to file for bankruptcy instead.
  • Opt for a different kind of debt relief such as credit counseling, employ a debt management plan or choose to pay the debt off on your own terms.
  • You may also completely withdraw your proposal and choose to file another one. However, it is worth considering that you should wait at least 6 months before your next filing as it means the Bankruptcy & Insolvency act will protect you to its fullest extent.

The best course of action, as long as you can reasonably do so, is to simply work with your creditors to amend the terms of your proposal. It is less stressful to work with the creditors and also less time-consuming as it prevents your proposal from being rejected altogether.

Are you afraid of your consumer proposal getting rejected? If so, hire the help of a trusted consumer proposal administrator. A professional will help you explore exactly what all of your options are, and they can aid you in coming up with terms that respect your financial situation and what you can afford.

Things You Must Know About a Consumer Proposal

We have started noticing a lot more people each day that have heard about consumer proposals, and many are interested in this approach as opposed to bankruptcy. But, it also appears that many of these people are not aware of how a consumer proposal actually works.

Keep reading to find out more about the essential facts surrounding consumer proposals:

  • A Consumer Proposal is a legally binding arrangement, that falls under the Bankruptcy and Insolvency Act, that is made between your creditors and you.
  • It can help you to lower the applicant’s debt load and improve cash flow. Settlements of around 30 cents to the dollar are very common.
  • This agreement consolidates all the debt that you owe into a single monthly payment.
  • This is usually a debt relief option that is the most affordable and offers very low monthly payments.
  • The monthly payments required of you will depend on what your creditors are open to accepting and what you can actually afford.
  • No interest is charged on a Consumer Proposal.
  • These proposals are offered only by a Licensed Insolvency Trustee. These individuals act as consumer proposal administrators.
  • This is the only “government” debt settlement program available.
  • You won’t be required to pay upfront fees to file your consumer proposal. Payments only start once your proposal has been filed.
  • The trustee’s fee forms a part of your proposal, so you won’t be liable for any extra fees.
  • A Consumer Proposal can protect your assets. For example, if you have $30,000 equity in the home, and you are worried you will lose your house in bankruptcy. If you choose a Consumer Proposal (and your creditors have accepted the deal), you maintain control of your property.
  • Consumer proposals can assist you when it comes to avoiding “surplus income” in bankruptcy. If you are earning more than the “surplus income” limit set by the government, or your income increases after filing, bankruptcy can turn out to be extremely expensive. A consumer proposal will give you five years to make your payments, which makes the monthly payments a lot more affordable.
  • In a proposal, you get to keep any of your tax refunds. On the other hand, when filing for personal bankruptcy, you will lose tax refunds in the year that you filed (at a minimum).
  • You will still be allowed to renew a mortgage when you are under a Consumer Proposal plan (provided you have kept up with the payments).
  • Creditors vote on these proposals, with each “dollar of debt” counting as 1 vote. If 50% plus 1 have voted in favor of this deal, all your creditors will be bound to it.
  • A Consumer Proposal will shield you from your unsecured creditors. This means no more legal actions or phone calls.
  • Your administrator for your Consumer Proposal will deal with the creditors once you have filed, which means you no longer have to.
  • You are not required to declare what you are earning to your trustee during your proposal.
  • Consumer proposals include two mandatory sessions of counseling that covers money management with a credit counselor (qualified), who will assist you with setting up and maintaining your budget. They will also give you ideas and advice on ways to rebuild your credit score safely.
  • A Consumer Proposal will be removed from your credit rating after 6 years of the filing (maximum), or 3 years after you have completed the proposal (whichever comes first). This is a lot sooner when compared to bankruptcy which typically remains on a credit report for 6 to 7 years (after completion). For a 5 year Consumer Proposal, this would mean your proposal would be removed 1 year after you have completed the proposal.
  • You have to complete a Consumer Proposal within 5 years.
  • You have the option to do either a full-lump sum or partial proposal to all your creditors.
  • You do have the option to pay your proposal off earlier.
  • You might be allowed to obtain credit cards during the proposal. This can assist you in rebuilding your credit before you complete the proposal. Yet we suggest avoiding building any new credit-based balances.
  • You get to avoid bankruptcy. This can be a good option when your employment would have been affected, and it provides personal relief or satisfaction to many.

Around two-thirds of Canadians, or 7 in 10 Ontarians, choose the option of a Consumer Proposal rather than bankruptcy to deal with their debt. To find out if this option is sensible for your situation, contact the Licensed Insolvency Trustees at Risman Zysman today to schedule a free consultation.

What Does a Certificate of Full Performance of Proposal Mean?

What Is A Certificate Of Full Performance?

The Certificate of Full Performance involves legally releasing you from some or all your debts. This is a type of certificate that only your Consumer Proposal Administrator can give you after you have completed your final proposal payment. It provides proof or validity that you have completed the terms of this proposal and you are discharged from your debts.

On completion of a consumer proposal, you can also expect to receive a Notice of Taxation of the Administrator’s Accounts, a Statement of Receipts and Disbursements, and a Discharge of the Administrator. This is the final documentation that you will receive from your Consumer Proposal Administrator. They will also send these documents to all your creditors, and the Official Receiver once the administrator has closed your file.

What Type Of Debts Will Be Released Once You Have Received Your Certificate Of Full Performance?

Once you have completed your consumer proposal, it releases you from the majority of any unsecured debt you may have had.

Unsecured creditors don’t have direct claims on your assets such as your house or your vehicle. If any of your unsecured creditors have a judgment or execution against any of your assets, these can typically be removed when you have completed a consumer proposal. The common types of unsecured creditors that are usually dealt with in consumer proposals include:

  • Credit card debt
  • Payday loans
  • Lines of credit or bank loans (not secured by assets)
  • Guaranteed government student loan debt that has exceeded 7 years from when your study date ended
  • The majority of tax debts, provided the government hasn’t instituted a lien registered against any of your property

However, there are a few unsecured creditor types that cannot be removed from your consumer proposal:

  • Alimony
  • Joint debtor’s liability
  • Debt that has arisen from fraud
  • Student loans, when your study date ended less than 7 years from when you filed for a consumer proposal
  • Any court-imposed penalties or fines
  • Restitution orders

What Happens To The Debts That Remain After You Have Completed Your Proposal?

Once you have received your Certificate Of Full Performance, and your Administrator is discharged, you are still liable to pay for any of your outstanding debts that have arisen from penalties, fines, fraud, or restitution orders. It is also important to know that if you are liable to pay child support, alimony, or spousal support it won’t be stayed when you file your consumer proposal. This means if you have obligations to pay child support, alimony, or spousal support, you are required to carry on paying.

When it comes to student loan debt that has been incurred (less than 7 years from the date that you filed a consumer proposal), you may have already consulted with your Licensed Insolvency Trustee and you were making modest or interest-only payments during the length of your consumer proposal. Once you have completed your proposal, it is advisable to start making larger payments towards the student loan to quickly eliminate these debts as well.

Your Credit Report And Your Certificate Of Full Performance

The OSB (Office of the Superintendent of Bankruptcy) is the institution that will report to all the credit bureaus about the date you completed your consumer proposal. Consumer proposal filing remains on credit bureaus for 6 years from the initial date that the proposal was filed or 3 years from the completion of the proposal (whichever date comes first).

It is in your best interest to contact TransUnion and Equifax (the main credit bureaus) a few months after completing your consumer proposal to make sure the completion of your credit proposal is reflected on your credit report. If the proposal is not displayed correctly, fill out a dispute credit report form provided by the credit bureau, and send them a copy of your Certificate of Full Performance so that they can update your records.

What Can I Do If I Am Still Receiving Collection Calls After Completing My Consumer Proposal?

In some cases, debts included in your consumer proposal are now part of batch sales to third-party collection agencies. These sales could take place even once you have completed your consumer proposal. If you receive calls from collection agencies after filing a consumer proposal, you should inform them that you have already filed a consumer proposal. You can also send them copies of either your Certificate of Full Performance or your consumer proposal documentation as proof.

You can also consult with your Licensed Insolvency Trustee for any assistance with issues related to your consumer proposal process. We are always here to guide and help you.

The Role of the Consumer Proposal Administrator

A Consumer Proposal is best described as one of the debt relief strategies that help individuals struggling with significant debt or insolvency. This proposal involves agreements between the insolvent individual and their “unsecured creditor”. This allows insolvent people to pay a dramatically lowered percentage of what they owe on their debts.

A consumer proposal administrator is a person that carries our consumer proposals. Keep reading to learn more about how consumer proposal administrators help consumers and more about their roles.

Who Is Allowed To Be A Consumer Proposal Administrator?

Only LITs (licensed insolvency trustees) are permitted to perform the role of a consumer proposal administrator. In Canada, none of the other professionals are allowed legally to administer these consumer proposals. This means no accountant, lawyer, financial advisor, debt consultant, or credit counselor can fulfill this particular role.

A licensed insolvency trustee is permitted to fulfill this specific role since they are debt professionals who are federally licensed to provide services and advice to businesses or people struggling with their debts. The services on offer include personal bankruptcy filings, division one proposals, and consumer proposals.

In addition to federal licensing, the LITs are also federally regulated. This means that these professionals are subjected to oversight by the OSB (Office of the Superintendent of Bankruptcy). This ensures that they uphold high standards relating to this position and that they never violate the stringent code of ethics. These are regulations and rules that ensure people in Canada are getting the needed support, especially when they are in the most vulnerable positions.

Who Can File A Consumer Proposal?

It is essential to be aware that only a licensed insolvency trustee is legally permitted to perform the role of a consumer proposal administrator. For any person that is approached by debt solution agencies that claim they can file Consumer Proposals, it is important for the individual to request the company’s credentials and to find out as much as they can about the organization.

Unfortunately, there are many debt solution firms that are illegitimate that prey on people that find themselves in desperate situations. Before you put your trust in a company, take the time to conduct your research and make sure they are Licensed Insolvency Trustees.

How To Ensure You Are Working With A Licensed Insolvency Trustee

  • They state clearly on their website and in their advertising that they are in fact Licensed Insolvency Trustees (formerly known as Bankruptcy Trustees).
  • The LITs and the firm have been listed in the Licensed Insolvency Trustee Registry.

If you cannot find these clues, it is best to find a company that can prove these credentials. This can also mean that the company is not one of the licensed insolvency trustees and they won’t be able to file a Consumer Proposal on your behalf.

What Is The Role Of A Consumer Proposal Administrator?

Consumer Proposal Administrators are professionals that carry out the role of filing consumer proposals. They can also determine when a debtor (someone struggling with their debts) qualifies for these services or when they should be using another strategy to obtain debt relief. Below are a few of the primary responsibilities linked to this role:

Filing Your Proposal

If you have qualified for a consumer proposal and you have decided this is the best path for you to follow, the consumer proposal administrator will help you to work out how much you can afford or manage with your proposal payments. They then draft this proposal, followed by filing the paperwork. The next step involves contacting all your unsecured creditors to discuss this potential agreement.

If a large percentage of your creditors have agreed to this proposal, it will go into effect. Throughout this proposal, your administrator will collect and make payments, contact your creditors, and arrange for credit counseling sessions which will be mandatory with this process. They will assist you through each step of this process, from start to finish.

Amending Proposals

If a large percentage of your creditors refuse the proposal, then your administrator can assist you by amending the proposal to ensure it comes across as more appealing. If this amendment fails to work, your administrator might recommend that you will need to file for Personal Bankruptcy as the next alternative. Consider the details of amending your consumer proposal and the reasons why unsecured creditors may be rejecting your terms.

Acting As A Mediator

The most important role that consumer proposal administrators perform is to act as a mediator. They can be seen as an impartial boundary that occurs between the applicant and the creditors. This means that when the applicant has complaints or wants to alter their proposal, they can consult with the administrator. At the same time, when a creditor wants to question an applicant or has an issue, they will need to deal with the administrator.

Repaying debts is often a stressful and tense experience. When you have an experienced mediator on your side it can make your repayment process a lot smoother, conflict-free, and ultimately successful.

Licensed Insolvency Trustees Vs. Debt Consultants

Debt settlement programs that are on offer by for-profit, unregulated, and unlicensed organizations can be extremely risky! Many debt settlement programs may claim that they can provide “debt relief” from creditors, but this comes without the legal protection that a Consumer Proposal provides. Many of these debt settlement programs will also require that all the creditors have to agree on the repayment terms. In comparison, a Consumer Proposal will only require 50% of the creditors to give the go-ahead, which means any remaining creditors will be bound to your consumer proposal.

If you have decided to use one of the unlicensed and unregulated debt settlement agencies, they will ask you to stop paying your list of unsecured creditors. You will be required to make these payments to the debt settlement company directly. Once they have collected a sufficient amount of funds from you, only then will they start contacting your creditors. They will then try to strike deals with these creditors, to try to make them settle for lump-sum payments that will be a lot lower when compared to what you owe. The practice will be repeated over a long period. But you might not know that this could take several years.

But it is important to keep in mind that one or all of your creditors may reject these offers, or worse, they could decide to take legal action against you for collection while waiting for offers, since stopping payments altogether will result in a default on your debt contracts.

Here are some of the warning signals that the company you are dealing with is one of the debt settlement programs:

  • You cannot find any information on their website that states they are licensed, insolvency trustees.
  • They asking for a fee upfront.
  • Since the debt settlement programs are not regulated, they can charge excessive and steep fees.
  • When the company is putting pressure on you to make a decision, you should seriously reevaluate whether you want to continue.
  • The licensed insolvency trustees will first assess your comprehensive financial situation, followed by giving you informed advice on the options available to you. They will also not put pressure on you when it comes to signing up for services you don’t need or want.
  • There is no feedback or reviews from customers on their website, or the reviews look like they have been fabricated.
  • They won’t allow you to view the entire contract before signing which would have given you enough time to understand and read over the document.

The biggest issue surrounding debt settlements is the fact that they are on offer by individuals known as debt consultants. The difference between a debt consultant and a licensed insolvency trustee is that a debt consultant is not licensed or regulated, which means you cannot be sure if they have experience or education that relates to financial woes. The debt consultants are also not regulated by the government, which means you also cannot be sure that the practices they are using are legal or ethical. The most important aspect is that a debt consultant has no authority over a creditor in any way.

Unsecured creditors are not required to listen to debt consultants. They are not even required to answer their emails or calls. If debt consultants attempt to tie the creditor into a deal, the creditor can still break this deal whenever they feel like it, since the agreement is not legally binding. This is why so many of the debt settlement programs are so risky.

This means you could go through a lengthy process to try and settle your debts, and the debt consultant might not be able to strike any deals with your unsecured creditors. If this does happen, you might find yourself in an even worse financial situation than you were before consulting with the organization. Your debt load will be larger and you will have accumulated late fees, penalties, and interest. The worst part of these situations is that your creditors may decide to legally take action to collect these funds from you.

Life After A Consumer Proposal

What Happens After a Consumer Proposal?

Deciding to file a consumer proposal needs to be a careful decision, and is one that should be made after ruling out all other bankruptcy options. However, for many, it’s a clear path to starting a new financial life.

Filing a consumer proposal allows you to participate in a debt settlement that is backed by the government. This can provide a giant debt reduction, and still allow you to keep many of your assets. Navigating the best way to start over financially and rebuild credit can be difficult. It’s vitally important that you spend time discussing your future finances with a Licensed Insolvency Trustee.

Future Effects of Filing a Consumer Proposal

When you file a consumer proposal in Canada, the main advantage is that the majority of debt is consolidated. Overwhelming debt payments can be reduced and consolidated, creating one monthly, interest free payment, that is far more affordable. In addition, a stay of proceedings is put into effect, and creditors can no longer contact you. They can also no longer start lawsuits against you. This proceeding can be a clear path to a new financial future. However, there are some small impacts on this type of proposal. For example, there will be a note on your credit report that you’ve completed a consumer proposal. However, once you’ve finished the consumer proposal, your creditors will be informed. Then you can start rebuilding your overall credit score. You can work on this process by using secured credit cards regularly and paying your bills on time, as well as using one bank for your finances and building up a banking history. You can discuss the overall impact of filing this proposal with a skilled Licensed Insolvency Trustee.

Obligations During the Consumer Proposal Process

While there aren’t the same duties required as with bankruptcy, you do take on some obligations when you file a consumer proposal. You guarantee that you will make all monthly payments on time, and that you will attend two credit counseling appointments. These are to help you learn more about managing your finances. You will not be required to report your income or your expenses.

Will a Consumer Proposal Affect Any of My Assets?

One major benefit of filing a consumer proposal in Canada, instead of declaring bankruptcy, is that you get to maintain your assets. Property and vehicles are secured debts, so as long as you’re able to maintain the monthly payments, you can keep them throughout the proposal. You also get to keep any contributions you’re making towards investment accounts and savings accounts.

How Will a Consumer Proposal Impact My Credit Report?

Consumer proposals are legally supported in Canada. This means that they all are reported to the Office of the Superintendent of Bankruptcy, and also to the credit bureaus. On the date that you file a consumer proposal, a notice will be logged. This will stay on your credit report for three years once your proposal has been fully completed. After you’ve completed your proposal, it will be removed by the credit bureaus. Many individuals notice their credit score begin to improve soon after they’ve completed their consumer proposal.

How Long Does a Consumer Proposal Take?

According to Canadian law, a consumer proposal can take a maximum of five years or 60 months. This makes it possible for the debt repayment process to be spread out for the debtor over a manageable amount of time, while also ensuring reasonably affordable payments. No consumer proposal should take more than five years. You can pay off your proposal earlier or make a lump sum payment, if your financial situation improves during the term of your consumer proposal. This will shorten your overall term.

After a Consumer Proposal

Filing a consumer proposal can be the first step toward financial freedom. After you’ve paid this off, you’ll have a dramatic reduction in debt, and you’ll just need to manage your monthly payments. Because your payments are reduced overall, you may even be able to start rebuilding your credit or begin to save some money. Speak to your Licensed Insolvency Trustee about ways to begin taking the first steps toward rebuilding your credit. You may be able to eventually obtain a low interest loan or the mortgage that you need, so that you can continue to take important steps toward financial freedom.

Do Banks Accept Consumer Proposals?

Will My Bank Accept A Consumer Proposal?

Every year our company files thousands of consumer proposals for our clients. We are among the largest consumer proposal administrators in Canada, which is why we have an interest in what the different creditors will look for in these proposals.

I often meet with the representatives of the biggest banks in Canada. These conversations might revolve around specific scenarios, but in general, I use these opportunities to ask them how they make the decision to accept consumer proposals.

Why is it so important that I stay updated on what the different banks feel about these proposals? Because the institution you are banking with will probably be one of the largest creditors in your consumer proposal.

I recently reviewed many of our previous filings to find the biggest creditors that have filed claims for “unsecured” debts in the proposals to display how substantial bank claims tend to be in Consumer Proposals on average.

The largest creditors present in consumer proposals according to an aggregate were:

  • CIBC
  • Canada Revenue Agency
  • TD Bank
  • RBC (Royal Bank)
  • BMO (Bank of Montreal)
  • Scotiabank
  • Capital One
  • Canada Tire
  • MBNA
  • National Student Loans Canada

This list might slightly change from one year to the next, but it is clear to see that all the banks in Canada are featured in the top 10.

Each creditor will vote on a proposal. The amount of votes they will get is according to the dollar value total of the debts that are owing. So, when CIBC or TD Bank, or Royal Bank is the largest creditor you have, this institution will have a dramatic impact on whether your consumer proposal fails or passes.

Banks will evaluate proposals according to their merit. The banks will base a decision according to a vote against or for proposals by reviewing the details pertaining to each person’s case.

Consumer proposals are negotiated settlements between the debtor and all their creditors. The main advantage of these proposals is that the individual can hold onto their assets, which they would have had to surrender if they choose the option of bankruptcy. However, you are required to pay out the value of your secured assets to each of your creditors.

So How Do You Go About Getting Your Bank To Accept Your Proposal?

Banks review proposals to make sure the proceeds from the proposal exceed the amount they might have received in bankruptcy. Creditors are not that likely to accept deals that will pay them 12 cents to every dollar when bankruptcy will provide the bank with 17 cents on every dollar.

Banks also want to ensure a proposal is fair and reasonable. If they believe you could be offering more, they might ask for a higher payment. No one would want to end up paying an amount to a proposal that they cannot afford, but the banks also want to make sure they are getting an offer that is reasonable.

At Risman Zysman, before we file consumer proposals on behalf of our clients, we will review their budget to come to a payment that you will comfortably meet every month. We only submit proposals that are affordable to our clients and the ones that the creditors will most likely accept.

Your bank or banks will review your proposal budget. They will also look at all the expenses that you have included and any household income to decide if the offer appears reasonable enough to them.

Keep in mind, that all creditors are different, and some of the banks will have a minimum “acceptable range” when it comes to recovery. Some banks expect to recover 25%, while others will want one-third. Some won’t have these set limits in place. Our company has filed thousands of proposals over the last few years, and we now have experience with what creditors, which includes the large banks, expect.

At Risman Zysman, we take every factor into consideration to make sure the consumer proposal that you are going to offer will work financially for you and will also be as acceptable as possible to your creditors. This is the reason why our company has a 99% acceptance rate when it comes to all the proposals we have filed.

If your debts have reached a point where you cannot keep up with your monthly payments, you may want to choose the option of a Consumer Proposal to help you deal with all your creditors. Call us today for your free consultation.