Consumer Proposal

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 and the 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 the mortgage on your principle residence.

First, a licensed insolvency trustee 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, then a consumer proposal should be considered. If the debtor has no surplus income, then a consumer proposal may not be the best solution.

Next, the trustee looks at the individual’s assets to see if there is any realizable value in those assets. If the answer is no, that there is no realizable value, or there are no assets, then 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 is affordable. 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 Link – Directive No. 11R2-2019 Surplus Income

Please take note that Directive No. 11R2, Appendix A, has been updated to reflect the Superintendent’s standards for the year 2019. The examples in Appendix B of the Directive have also been revised. Note: If you experience difficulty accessing the link, cut and paste the link directly into your browser’s address line.

• Interest on your debts is frozen from the date you file;
• The option to negotiate to repay only a portion of the debt you owe;
• Your creditors are “stayed” (restricted) from taking any legal action against you;
• Wage garnishments, except for support and alimony, are immediately stopped;
• If accepted by a majority of your creditors, in dollar value only (50% +1), it is deemed to be accepted by ALL creditors; and
• The maximum period is 5 years.

If your debt exceeds $250,000, you 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.

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 accumulates against them.

That is 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. 15 days after this time, 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.

Two counseling sessions are mandatory during the consumer proposal and your attendance will be required in order to complete your 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 licensed insolvency trustee immediately.

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). 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.

Just remember! A consumer proposal will only work if you have 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.

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

Call to schedule a consultation with one of Scott, Pichelli & Easter’s associates to discuss whether a consumer proposal is an alternative to bankruptcy in your current situation.