A. Definition of a consumer proposal
A consumer proposal is a legal agreement negotiated between you and your creditors. It is facilitated by a Licensed Insolvency Trustee. A Licensed Insolvency Trustee (also known as LIT) is a federally regulated professional who is licensed to provide advice and services to persons and businesses who suffer from debt problems. They are licensed by the Office of the Superintendent of Bankruptcy (OSB) and administer consumer and bankruptcy proposals under the Bankruptcy and Insolvency Act (BIA).
B. Importance of discussing financial difficulties
Debt can be a crippling burden and, for many, can turn into a never-ending spiral of making minimum payments, if that, and not getting anywhere. Discussing your financial situation with a trusted friend or loved one can help put things into perspective and set you on a path to financial recovery. In most cases speaking with a financial professional will open up different avenues to debt recovery, so you can make an informed decision on how to proceed.
So, discussing financial difficulties is important as it will put them out into the open, making it easier to face and deal with them.
C. Purpose of the article
In this free blog, we will look into what a consumer proposal is, how it works and what its advantages are. It can be a great option to lead you onto the road to financial recovery, so let’s dig right in.
II. What is a Consumer Proposal?
As mentioned above, a consumer proposal is a legal agreement negotiated between you and your creditors through a Licensed Insolvency Trustee. It is a legally binding agreement between you and your creditors to pay back a previously negotiated part of your debt in monthly payments over the course of up to five years. Basically, you and your trustee will discuss your financial situation to determine how much of your total debt you can reasonably afford to pay back. The trustee then will prepare a proposal to submit to your creditors, outlining the payment plan, for them to approve. After the approval has been made, you have to follow the payment plan and any other stipulations strictly. Once you have made all agreed-upon payments, your creditors will discharge the remaining debt, and you will be debt free.
A. Overview of the consumer proposal process
First off, you have to find a Licensed Insolvency Trustee. If you search on Google, you will likely find a fairly large number of LITs in your area. Take some time to do your research. Check the trustee’s website for credentials and experience. Check independent reviews of their services on pages such as Google or TrustPilot to get a better idea of clients’ experiences with their services. Most trustees offer free, confidential, no-obligation consultations, so you can speak to several of them to be able to compare their services and plans. Please note that if you are asked for payment, this could mean that you are not dealing with an actual LIT but an unlicensed debt consultant.
The LIT will then discuss your financial situation with you to determine the best debt-relief option for you. If a consumer proposal is identified as the best way to move forward, they will go through all debts and assets to come up with a payment plan that you can afford. Then they will create the proposal and submit it to court. From this moment, your creditors will have 45 days to respond and accept or reject the proposal. If they reject the proposal, your trustee will work with you to amend and improve it and resubmit it.
In the case of an acceptance, the court will approve your proposal within 15 days. Then you begin to make the agreed-upon payments and are on your way towards eliminating your debt and rebuilding your credit. This process also includes two mandatory credit counselling sessions. After all payments have been made and all conditions that were outlined in your consumer proposal are met, you will receive a Certificate of Completion, which is the document legally releasing you from all debts included in your proposal.
B. How consumer proposal differs from other debt-relief options
A consumer proposal differs from other debt-relief options in several ways. Where a debt management plan will put forth a proposal to your creditors on how you will pay back your debt, it will not change your actual debt burden, while a consumer proposal can reduce your total debt by up to 75%, which will vary from case to case.
On the other hand, bankruptcy will also discharge you from your debt; however, you will have to surrender all non-exempt assets you have to your LIT, and it will have an even bigger negative effect on your credit rating.
C. The benefits of choosing a consumer proposal
There are several benefits to a consumer proposal.
One of the biggest benefits is that a consumer proposal can reduce your debt by up to 75%.
Consolidated lower monthly payments
Not only will your monthly payments be considerably lower than before the proposal, but instead of dealing with payments to all the different creditors, you only have to make one payment to your LIT, who will then distribute the money as per the payment plan.
You can keep your assets
As opposed to bankruptcy, your assets are protected, meaning that you can keep all tax refunds, investments and home equity.
An approved consumer proposal will stop all collection calls and garnishments, as well as all interest charges on your debt.
III. Understanding the Consumer Proposal Process
A. Eligibility requirements for consumer proposal
Not everybody is eligible to file a consumer proposal.
To be eligible to file a consumer proposal, there are several criteria you have to meet:
- You have to be insolvent, meaning that you owe more than $1,000 and are unable to pay your debts as they become due.
- You have to be a person, as a business is not eligible for consumer proposals unless it is a sole proprietorship.
- Your debt (excluding the mortgage on your principal residence) cannot exceed $250,000.
- You have to be able to pay the payments as outlined in the plan. (Please note that if you cannot keep up with payments and miss three payments, your proposal will be cancelled and your debt will be reinstalled. All payments paid through the proposal will be lost.)
B. How to file a consumer proposal
Make an appointment with a Licensed Insolvency Trustee
Find a Licensed Insolvency Trustee for a free, confidential, no-obligation consultation to discuss your financial situation, including all debt, income, assets and monthly expenses.
Decide which debt-relief solution is best for you
The LIT will then go over all available debt-relief options to determine which is the best solution for your situation.
Prepare the consumer proposal
Now, the LIT will help you prepare the consumer proposal by determining a reasonable monthly amount you can afford to pay. They will then prepare the document outlining how much of the debt you will repay, how large the monthly payments will be, and over how many months.
File the proposal
The LIT will file the consumer proposal in court and send a notice to all creditors. After the filing, your creditors will have 45 days to either accept or reject the proposal. At this point, interest on your debt will stop, and you will also be protected against calls from collection agencies or wage garnishments.
Creditors accept the proposal
Once the majority of your creditors accepts your proposal, it will be approved by the court within 15 days and then be legally binding for both creditors and yourself. This is the time when you begin making payments as outlined in the proposal.
Make payments as agreed to your LIT
Now, you will make the agreed-upon monthly payments to your LIT, who will then distribute the money received among your creditors.
Attend two mandatory credit counselling sessions
Part of every consumer proposal are two mandatory credit counselling sessions to help you budget and manage your finances.
Release from your debt
Once all terms and payments of your consumer proposal are fulfilled, your LIT will file all necessary paperwork to finish the process. You will receive a Certificate of Completion that will release you from the remainder of your debt.
C. What to expect during the consumer proposal process
After your consumer proposal has been accepted, you must make the monthly payments outlined in your proposal to your LIT for the agreed-upon duration. You also will be required to attend the two mandatory credit counselling sessions.
IV. Benefits of a Consumer Proposal
A. Reduced debt payments
It lies in the nature of a consumer proposal that the overall amount of the debt owed is reduced. This leads to more manageable monthly payments to ensure that the proposed and agreed-upon amount is paid off as laid out in the proposal. Another benefit is that the payment is made to the LIT instead of juggling payments to multiple creditors.
B. Protection from collection agencies and legal action
A proposal will protect you from calls from collection agencies and any legal action such as wage garnishments. It also stops the accrual of any interest on your debt.
C. Avoidance of bankruptcy
Bankruptcy comes with many negative consequences, such as having to relinquish any assets that are not exempt. If your income situation improves during the time of bankruptcy, you will be required to pay more as well, and it has an even bigger impact on your credit rating.
D. Increased flexibility in debt repayment
A consumer proposal allows you to make a one-time lump sum payment upfront, you can structure the term of your proposal from anywhere between three and 60 months, and you have the freedom of making larger payments if you have the financial means to, which can allow you to complete your proposal sooner.
V. When is a Consumer Proposal the Best Option?
A. Situations where a consumer proposal may be preferable to other debt-relief options
If you can’t afford to pay off your debt in full or manage the required minimum payments, then the next option is to try and settle your debts for less than the balance you owe. In this case, a consumer proposal is a very viable option as it can reduce your debt owed by up to 75% while avoiding the more negative consequences of bankruptcy.
B. Factors to consider when deciding on a consumer proposal
One of the main factors to consider when deciding on a consumer proposal is if you are eligible for it, such as being insolvent, meaning you are unable to pay your debts as they become due, not owing more than $250,000 (excluding the mortgage on your primary residence) and being able to pay the payments outlined in the plan.
It is also important to note that not all debt is eligible to be included in a consumer proposal. Court-ordered debts, such as arrears of alimony or child support, student loans that are less than seven years old and secured debts, such as mortgages, car loans or home equity loans and lines of credit, cannot be included in a consumer proposal.
C. Comparison of consumer proposal to other debt-relief options
Depending on the kind of debt, you can try to negotiate the interest rate of your debt, like with credit cards, or hire a reputable debt relief agency to negotiate lower interest rates for you or find other solutions.
Another option is a consolidation loan, with which you can pay off multiple debts and then only have one payment to worry about at the lowest interest rate possible. While this will not reduce your debt, it can help you consolidate everything into one payment instead of having to keep up with several of them, and potentially at a lower interest rate than with the other debt you already have.
A debt management plan is not unlike a consumer proposal but involves a licensed credit counsellor and a debt payoff plan that also is administered by the counsellor. It does not, however, reduce your debt but only helps you manage the debt better.
Finally, bankruptcy comes into play when you have accumulated so much debt that you can’t repay even a portion of what you owe. It will also lead to a debt discharge. However, it will require you to relinquish all non-exempt assets, potentially pay more if your income situation improves and will also have a bigger negative impact on your credit rating.
A consumer proposal provides you with an opportunity to eliminate the crippling burden of debt while reducing the amount by up to 75%. It allows you to keep your assets and consolidate all payments into a single monthly payment, and you can spread it out up to five years, making it more manageable to comply with. And it also freezes all interest on your debt, stops calls from collection agencies and puts an end to any legal action, such as wage garnishments.
It is critical for you to seek professional advice when you notice that you are having increased problems managing your finances and see debt starting to pile up. A professional can analyse your financial situation and advise you about all available options for debt recovery. They have the experience and expertise to find a solution that works best for you.
Risman Zysman has over 45 years of experience providing quality debt solutions. Our team of professionals understands the fears and frustrations of individuals facing financial difficulty. At Risman Zysman, we make sure to present each client with a full range of options and guide them to make the right choices so they can move forward.
To find out how we can help you, call us at 416-222-4600 and get a free, confidential, no-obligation consultation today! Risman Zysman can help you on your way on the road to financial recovery.