Are you trying to understand how to qualify for a consumer proposal or what a consumer proposal is? If you cannot pay your unsecured debts as they come due, a consumer proposal can be a great way to ease the financial strain on your household.
Under this federal government program, you can negotiate new payment terms with your creditors to repay a percentage of your existing debts. In other words, a portion of your debts will be forgiven, leaving you with a smaller, more manageable balance to pay.
However, you can’t enroll in a consumer proposal on a whim—you must first meet a few requirements. And even then, it may not be the most suitable way to manage your debts—alternatives such as debt consolidation or bankruptcy may be better options. In this article, we’ll explain everything you need to know about qualifying for a consumer proposal to help you make an informed decision.
How do you qualify for a consumer proposal?
To be eligible for a consumer proposal, you must satisfy the following requirements, as outlined in the Bankruptcy and Insolvency Act (BIA):
- You must be a person who is at least 18 years old (corporations aren’t allowed to file consumer proposals).
- You must meet at least one of these conditions:
- Be a Canadian resident, or
- Operate a business in Canada, or
- Own property in Canada.
- You must be unable to pay your debts in full as they come due or have insufficient assets to cover your debts.
- You must work with a Licensed Insolvency Trustee (LIT). In Canada, only LITs can legally administer consumer proposals.
- You must have a reliable income (to ensure you can make your monthly payments under the proposal).
- You must not have any past consumer proposal that’s still active or a prior proposal for your existing debts that’s been annulled. In the case of the latter, you must wait until your debts have been paid or discharged through bankruptcy or obtain a Court Order authorizing the filing of another consumer proposal.
- You must have unsecured debts to settle. An unsecured debt is a loan that’s not backed by an asset. Some examples of unsecured debts include credit card debt, payday loans, lines of credit, tax debt, utility bills, and some types of student loans. Secured debts don’t qualify for inclusion unless you surrender the asset providing the security.
- You must owe at least $1,000 and less than $250,000 (excluding mortgage debt on primary residence).
An LIT will review your financial situation to determine whether you qualify for a consumer proposal and whether it’s the most suitable way to deal with your debts. If you don’t meet the criteria, they’ll help you weigh your other options, such as debt consolidation or personal bankruptcy.
Can you file a consumer proposal with your spouse?
Yes, you can file a consumer proposal with your spouse or common-law partner. This arrangement is called a joint filing. Under a joint consumer proposal, you and your spouse or partner will be equally responsible for the monthly payments. Strategically, this move makes sense if share a substantial amount of debt through co-signed loans with your significant other.
The following requirements must be met to qualify for a joint consumer proposal:
- All or substantially all of the debts you share with your spouse or partner must be similar
- The total debts must not exceed $500,000 (excluding the mortgage on the primary residence).
- You must both be eligible to file a consumer proposal independently
Can you file a consumer proposal if you’re already bankrupt?
Yes, you can file a consumer proposal if you’ve already declared bankruptcy.
Sometimes, this switch could work to your advantage. For example, let’s assume that your income has increased substantially after filing for bankruptcy, resulting in more financial stability for your household. With a higher income, you could wind up making surplus income payments, so your bankruptcy will be more expensive than you initially anticipated.
Under a consumer proposal, your monthly payment amount stays the same regardless of your earnings, making it a more attractive debt relief option for those with high incomes. Should your financial situation improve, your LIT can crunch the numbers to see if shifting from bankruptcy to a consumer proposal will save you money.
There are a couple of things to keep in mind if you decide to file a consumer proposal while bankrupt:
- The start date of your consumer proposal will be the same as your bankruptcy filing date.
- You cannot add unsecured debts incurred during bankruptcy to your proposal.
- You must disclose the increase in your income or assets to your creditors, whether it stems from a pay raise at work or a financial windfall.
What happens after you qualify for a consumer proposal?
If you meet all the legal requirements for a consumer proposal, your Licensed Insolvency Trustee (LIT) will review your financial circumstances to determine how much of your existing unsecured debt you can afford to pay. Then, based on these details, they’ll help you draft a repayment plan to present to your creditors.
Once all the paperwork is complete, your LIT will file your proposal with the Office of the Superintendent of Bankruptcy (OSB). Once it’s processed, you stop making payments to your unsecured creditors. The Court will grant you a stay of proceedings, protecting you against legal action, such as wage garnishments and bank account freezes.
From there, your LIT will submit your proposal to your creditors so they can review the terms and vote on whether to accept it. If the majority of creditors vote to accept your proposal, it will go into effect.
Learn more about the process of filing a consumer proposal.
What if don’t qualify for a consumer proposal?
If you don’t qualify for a consumer proposal (or your proposal gets rejected by your creditors), don’t panic. You still have other options available to deal with your debts.
Revisions and counteroffers
The consumer proposal process doesn’t automatically end if your creditors refuse to accept your terms or want to alter some conditions that don’t work in your favour. Your LIT can work with you to revise your proposal or present a counteroffer that better aligns with your financial circumstances and the wishes of your creditors.
Division 1 proposal
If you owe more than $250,000 in unsecured debts, you may be eligible to file a Division 1 proposal. This proposal is geared toward individuals who owe debts that exceed this amount or business owners who owe any amount of debt they cannot repay in full. If you manage an incorporated business that’s struggling financially Division 1 proposal can help reduce you debt burden while avoiding bankruptcy.
Bankruptcy
Bankruptcy is the last resort option for removing burdensome debts. It will completely wipe out your unsecured debts and give you a fresh foundation to rebuild your finances.
As with a consumer proposal, you must demonstrate that you’re insolvent and have no means to pay your unsecured debts on time. The bankruptcy process usually takes nine months to complete. However, the timeline may extend to 21 months if you make surplus income payments.
Bankruptcy may seem like a painful obstacle, but the Licensed Insolvency Trustees at David Sklar & Associates will guide you every step of the way. Learn more about personal bankruptcy and how it compares to a consumer proposal.
Is it worth filing a consumer proposal even if you qualify?
While you may check all the boxes when qualifying for a consumer proposal, that doesn’t necessarily mean it’s the most practical and cost-effective solution. Your LIT will review your financial situation to determine whether a consumer proposal is the best path forward or if declaring bankruptcy makes more sense.
Filing a consumer proposal over bankruptcy is ideal if you meet the following conditions:
- You own a significant amount of valuable assets. Under bankruptcy, you must surrender certain assets in exchange for debt forgiveness. The more assets you own, the more you stand to lose. Under a consumer proposal, you get to keep all your assets.
- You earn a high income. If your household generates a high income, you may have to contribute surplus income payments during bankruptcy. Under a consumer proposal, your monthly payments always stay the same regardless of how much you earn.
- You can afford to repay some of your debt. A consumer proposal is suitable if your budget allows you to make partial payments on your unsecured debts. Bankruptcy is reserved for those who cannot pay anything.
- You want to rebuild your credit sooner. A first-timebankruptcy will stay on your credit report for up to seven years from the discharge date. Should you declare bankruptcy again, you’ll have to wait 14 years before it’s gone. In contrast, a consumer proposal remains on your credit report for three years after you’ve completed the program or six years total from the date of filing, whichever is shorter. As such it’s a more appealing option if repairing your credit is a priority.
Learn if a consumer proposal is the right solution for you with David Sklar & Associates
Qualifying for a consumer proposal involves meeting the legal and practical requirements. First, you must satisfy the criteria outlined in the Bankruptcy and Insolvency Act. Second, you must determine if this debt relief program is the most economical way to get the financial relief you need.
If you’re considering filing a consumer proposal, your first step is to contact a Licensed Insolvency Trustee (LIT) to review your debt situation and determine your eligibility. At David Sklar & Associates, we’ve helped thousands of clients get a fresh start by filing a consumer proposal. When you walk through the door, our team will make the process as painless as possible. Our staff are professionals who are compassionate and easy to work with. They can answer any questions you have about consumer proposals and other debt-relief solutions.
Contact us today for a free, no-obligation appointment to see if a consumer proposal is right for you.
