A consumer proposal is a process by which you make a new arrangement with your unsecured creditors for a monthly payment you can afford. (Example: Credit Card Companies) Your secured creditors such as; (car loans, mortgage on your house) are not part of the proposal unless you are willing to give up the asset.

Consumer proposals are for individuals whose debts do not exceed $250,000 excluding your mortgage on your principle residence.

Proposals to creditors were created to provide people with an alternative to bankruptcy. If you are currently in a bad financial situation and you still have the ability to repay a portion of your debts, perhaps a consumer proposal to your creditors is the right solution for you.

Should your debt exceed $250,000

If your debt exceeds $250,000 your are not eligible to file a consumer proposal. You may still be eligible to file a proposal, but it is called a division one proposal. In either case you must have the ability to repay a portion of your total unsecured debt.

How does a consumer proposal work?

First, a Trustee in bankruptcy will help you summarize your financial situation and determine if a consumer proposal is the best option for you. The Trustee will first take a look to see if the individual has surplus income. If the individual has a large amount of surplus of income, say more than $350.00 per month than a consumer proposal should be considered. If the debtor has no surplus income than a consumer proposal may not be the way to go.

The Trustee then looks at the individuals assets to see if there is any realizable value in those assets. If the answer is no, there is no realizable value, or there are no assets, than a consumer proposal most likely is not necessary. If there is equitable value in the asset, such as a house and the debtor wishes to keep the house, then a consumer proposal should be considered.

If the Trustee and the debtor agree that a consumer proposal is the best option, then the Trustee and the debtor will decide how much of a monthly payment you are able to afford. That payment will be compared to the total amount of your unsecured debt to determine how many months you will be required to pay. If the numbers appear reasonable for both you and your creditors, the trustee will prepare the documents necessary to file a proposal to your creditors.

Surplus Income Link

Please take note that Directive No. 11R2, Appendix A, has been updated to reflect the Superintendent’s standards for the year 2010. The examples in Appendix B of the Directive have also been revised.

Directive No. 11R2-2010 updates Directive No. 11R2, issued on August 14, 2009, on the same topic, to reflect the Superintendent’s Standards for the year 2010.

Directive No. 11R2-2010 may be accessed on the OSB Web site at: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02377.html

Note: If you experience difficulty accessing the link, cut and paste the link directly into your browser’s address line. 

What happens once I file a proposal?

Once you have filed a proposal, none of your unsecured creditors can garnish your wages or take you to court until the proposal has been dealt with. In fact, if your wages are being garnished and you file a consumer proposal, the garnishment on your wages will be stopped.

In addition, when you file a proposal to creditors, all of your unsecured debts are frozen and no more interest accumulates against them.

Is that all there is to it?

That’s the end of the first stage. The second stage is up to your creditors. Under the Bankruptcy and Insolvency Act ("BIA") your creditors will have 45 days to vote for or against your proposal. If a simple majority in dollar value(50 % +1) vote for your proposal then it is deemed to be accepted by ALL of your creditors. Fifteen days after that, if there are no objections, your proposal will then be approved by the Court. From that date forward, both you and your creditors are locked into the terms of the proposal.

What happens if I miss a payment on my consumer proposal?

Over the life of your proposal you may not miss more than 2 payments.

If you miss 3 payments the proposal to the creditors will collapse 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 when you first filed your proposal.

If you start running into payment problems with your proposal to your creditors, contact your bankruptcy trustee immediately.

How does a consumer proposal affect my credit rating?

Once you've filed a proposal to creditors your credit rating will be revised to either an R7 (paid through a consolidation order, consumer proposal or credit counseling debt management program) or an R9 (bad debt or placed for collection or bankruptcy)and it will remain at this rating until the proposal is completed. In addition, after you've completed the proposal, a note will be attached to your credit record for up to 3 years from the date the proposal ended.

Consumer proposals sound too easy…

Just remember! A consumer proposal will only work if you have the ability the ability to repay a portion of your unsecured debt. If you don't your alternative is to file bankruptcy. Your proposal must offer your unsecured creditors more money than they would receive if you were to file bankruptcy

What does a proposal to your creditors cost you?

The trustee’s fees are set by the Superintendent of Bankruptcy and are described in the BIA. In most cases, your bankruptcy trustee will be paid out of the proceeds of the proposal.

I think I'm a candidate for a consumer proposal

Call today and make an appointment to consult with one of Scott & Pichelli's associates. To discuss whether a consumer proposal is an alternative to bankruptcy in your current situation.