Canada Bankruptcy

What is a Consumer Proposal?

Consumer Proposals (“proposal”) is the main alternative to filing an assignment in bankruptcy. A consumer proposal is an arrangement between you and your creditors which enables you to pay a portion of your debts over an extended period of time. The amount that you pay and the length of time you pay this amount is determined is based on the amount of your income living expenses and any other financial responsibilities you have. A consumer proposal is simply a” Negotiation with the creditor”.

Who is eligible for a proposal?

In order to file a Consumer Proposal, your debts must be less than $75,000 in total. Secured debts (mortgages on your principal residence and vehicle leases) are not included in this $75,000 figure, but all other debts must be included. If your debts exceed $75,000 you can still file a proposal, but it falls under the Division 1 proposal rules.

How does a Consumer Proposal help me?

As soon as a consumer proposal is filed, the rights of the creditors to start or continue any legal or collection procedures against you are suspended. In other words, if a creditor is threatening to garnish your wages or seize your assets, they will not be able to do so any longer, regardless of whether or not they have already started a legal action.
The filing of the consumer proposal gives you time to deal with your creditors over a long period of time – up to a maximum of five years. Interest stops immediately upon filing of the consumer proposal. It is quite normal that you and the administrator negotiate a reduction in the principal amount of the total debt, which is paid over the period of time – the length of which is negotiated with your creditors.
Ultimately the amount that is payable each month and the number of months that this amount is payable is based on many factors such as:

• Your Income
• The income of other members of your family that is contributed to family living expenses.
• The value of any assets that you have that could be vulnerable to creditors if they reject the proposal (equity in house, cottage, boats, cash surrender value of life insurance, RRSP, RESP, etc.)A variation of the “normal” proposal is to offer to the creditors a lump sum “advance” payment coming from refinancing your house (via a second mortgage) or borrowing against life insurance and adding a small monthly payment thereafter from your monthly income. This makes the proposal much more attractive to the creditors because of the lump sum payment. The downside is that you, the debtor, pay interest on the money borrowed for the front payment, but this is offset by the lower payments you make during the proposal.

Which debts can I include?

Unsecured

Proposal were created to deal with unsecured debt. An unsecured debt is money owed without collateral. Some examples of unsecured debt include:

• Credit Cards
• Lines of credit
• Personal Loans
• Income Taxes

Secured Debts

Secured debt is money that was borrowed with a condition that if you fail to make your payments one (or more) of your possessions may be seized and sold by the secured creditor. Some examples of secured debt include:

• Mortgage
• Car Loan / Lease
• Financing contract

Secured Debts can be included if:

You owe a secured creditor more than the value of the item over which they hold security. For example: "One of your creditors is ABC. You owe $2,500 and they hold security over your stereo system, with a current value $1,500."ABC is both a secured ($1,500 for the stereo) and an unsecured creditor ($2,500 - $1,500 = $1,000). Under the terms of the proposal, you will have to make an arrangement to pay ABC the $1,500 that they are entitled to (the value of their security) or give them the security (your stereo). The other $1,000 that ABC is owed will get lumped together with all of your other unsecured debts.

Can't I just leave ABC out of the proposal?

No. If you file a proposal as a means of debt negotiation and settlement, you are required to include all of your unsecured creditors. That goes for family and friends too. All of your unsecured creditors must be treated the same – it is not your choice not to pay or pay.

What happens if I miss a payment?

 If you miss 3 payments, the proposal collapses and is annulled by the Court. If your proposal is annulled, your unsecured creditors may immediately apply to the court to garnish your wages and interest charges are applied to your debts back to the day that you filed your consumer proposal.

What about my credit rating?

As soon as you file a proposal your credit rating will drop and it will probably remain there until the proposal is completed.

This sounds too easy...

Don't kid yourself. Your idea of debt negotiation and settlement through a consumer proposal will only work if you have the ability to make your payments. Remember. Your proposal must offer your unsecured creditors more money than they would receive in a Bankruptcy and they have to believe that you are capable of making the payments that you are proposing.

What do I do now?

If you are experiencing financial difficulty, and are thinking that debt negotiation and settlement with creditors in the form of a consumer proposal might work for you, we recommend you to make an appointment with us ASAP. We will assess your situation and help you determine the strategy and Solution that makes the most sense for you. May I remind you that the initial consultation is free of charge, and may help you to resolve your problems before they get out of hand? 

Find out what your options are, talk to us today!!!

Clear Debt Solutions: 905-230-7653