How can a consumer proposal help me?
Many people struggling with debt in Ontario have considered filing for personal bankruptcy but are concerned about losing their assets and the consequences that follow. In some cases, bankruptcy is the right solution, however, most debt problems can be solved with a Consumer Proposal, the #1 alternative to bankruptcy.
A Consumer Proposal is a way of consolidating all your debts and offering to pay your creditors a smaller percentage of what you owe them. It’s a legal agreement you make with the help of a Licensed Insolvency Trustee and is a federally regulated program. It also has several advantages over a bankruptcy, whereby you get to keep all your assets, freezes interest charges, stops collection calls, and stops any legal actions made against you. Once your consumer proposal is accepted you will make one low monthly payment to your Licensed Insolvency Trustee, who will then distribute the funds to all your creditors.
Your monthly payments will be based on your income, expenses, assets, and what you can afford to pay. A Consumer Proposal is paid over a maximum period of five years or can be paid off at any time. Typically, a Consumer Proposal will result in a lower single monthly payment than a personal Bankruptcy and will allow you to save more and rebuild your credit faster. The proposal is a fair solution for everyone involved.
Can I file a consumer proposal?
To be eligible to file a Consumer Proposal, you need to meet the following conditions:
- You must live or work in Canada, or have the majority of your assets in Canada
- You must owe at least $1,000 but no more than $250,000 excluding the mortgage on your principal residence.
- You must be insolvent, which means either your debts are more than your assets, or you are unable to keep up with the payments on your debts as they become due.
- You have the ability to make a monthly payment to your creditors.
You do not need to be a Canadian citizen or permanent resident to file a Consumer Proposal, you simply need to live in Canada.
When should I file a consumer proposal?
If you are experiencing financial difficulties, having problems making ends meet, and your debt is getting out of hand, you will want to consider all possible solutions to help you get back on your feet. If you’ve already tried budgeting, sought out credit counselling assistance, or attempted to obtain a consolidation loan and you still have not found a solution to your debt problems, a consumer proposal could be the solution you are looking for.
While these other options might help you, oftentimes they cannot reduce the monthly burden on your cash flow enough and ultimately not resolve your problem, or possibly worsen it. This is because these solutions all require that you repay all of your debt, and usually include interest as well.
A Consumer Proposal is a solution that stops all interest and typically provides a significant reduction to the total amount you must repay.
Is a consumer proposal better than bankruptcy?
Bankruptcy is the other Government-regulated, legally binding, formal debt solution option offered under the Bankruptcy and Insolvency Act.
Bankruptcy is considered a last resort. A Consumer Proposal has some significant advantages over a Bankruptcy. These include:
- Keeping your assets
- Less impact on your credit report
- Payments amounts are locked-in
- Payments are spread over a longer period
- May not affect employment or professional status
You can keep your assets
With a consumer proposal, the debtor can keep all their significant assets as long as they continue making their payments. Houses/rental properties, vehicles, RRSPs, TFSA’s tax refunds, and others are protected in a consumer proposal.
This is not the case with bankruptcy. Personal bankruptcy does not protect all of your assets, as many of them are surrendered to the licensed insolvency trustee to settle your debts. There are exemptions, such as household furniture, personal clothing, trade tools, and a motor vehicle (up to a specific value).
Less impact on your credit report
A Bankruptcy is reported on your credit report for a minimum of 7 years and up to a maximum of 14 years, or forever, depending on how many Bankruptcies you have filed in total.
A Consumer Proposal is reported for as little as 3 years to a maximum of 6 years regardless of how many Consumer Proposals you have filed in the past.
Payments are locked-in
In a Bankruptcy, you may be required to pay surplus income, which is based upon your income as reported monthly. This payment can change as your income changes, so a raise, a promotion, or a bonus would result in increases to what you pay.
In a Consumer Proposal, you agree to a specific monthly payment after a consultation with your Licensed Insolvency Trustee. Once the Consumer Proposal is accepted by your creditors, this payment amount is locked and will not change regardless of bonuses, promotions, raises, new job, etc…
Payments are spread over a longer period
In a Bankruptcy, the amount of surplus income you are required to pay can be a significant monthly amount and must be paid over either 21 months or 36 months depending on how many times you’ve declared bankruptcy.
While a Consumer Proposal may require you to pay a similar amount, this amount can be paid over a longer period of up to 5 years, greatly reducing the monthly payment amount.
A bankruptcy can affect your job
The status of some employment positions and professional designations are negatively affected by a Bankruptcy. For people who have jobs that require bonding – a kind of insurance based upon your credit history – like a bank teller or cashier, amongst others, and people with professional designations such as accountants or lawyers, amongst others, Bankruptcy can have a significant negative effect.
With a Bankruptcy, bonding companies may not approve bonds for employees who are bankrupt. This may result in losing your job.
With a Bankruptcy, professionals are generally required to report the Bankruptcy to their professional organizations. The impact can range from losing your professional designation, to varying levels of restrictions on your ability to work in your field.
A Consumer Proposal does not have the same level of impact as a Bankruptcy and many times your employment or professional designation will not be affected. In a lot of professional associations, as long as a Consumer Proposal is completed successfully, there is minimal impact.
Every job and profession is different, so you should check with your employer or your professional association by-laws to confirm the impact a Bankruptcy or a Consumer Proposal may have on your career.
What debts can a consumer proposal include?
UNSECURED DEBT: A Consumer Proposal provides protection from and can eliminate most unsecured debts. Examples of unsecured debts are as follows:
- Credit Cards
- Lines of Credit
- Bank Loans
- Personal Loans
- Pay Day Loans
- Tax Debts (such as personal income tax or HST)
- Court Judgements
- Costs Awards
- Student loans
SECURED DEBT: A Consumer Proposal cannot eliminate secured debts unless you give up the security. However, if a Consumer Proposal is filed, a secured creditor cannot change the terms or conditions of your loan and as long as you remain current on your payments, the secured assets are safe. Examples of secured debts are as follows:
- Secured Credit Cards
- Secured Lines of Credit
- Car Loans
- Certain Tax Debts
TAX DEBTS: In general, a Consumer Proposal can include, tax debts of all types, however, the Canada Revenue Agency has a wide range of effective collection tools at its disposal, which, if implemented prior to a Consumer Proposal being filed, can result in certain tax debts no longer being eliminated by the Consumer Proposal.
If you have complex tax issues and worry that your tax debt may not be covered by a Consumer Proposal, it is recommended that you discuss your tax situation with one of our Licensed Insolvency Trustees.
STUDENT LOAN DEBT: Student loan debt is unsecured debt. Therefore, student loan debt can be eliminated through a Consumer Proposal. However, there are special rules that if your period end study date (the date you ceased to be a student) is less than 7 years before filing your Consumer Proposal, your student loans will not be eliminated. It is recommended that you contact the various Student Loan agencies to verify your Period End Study Date to assist in determining whether or not your student loan debt will be eliminated.
What are the benefits of filing a consumer proposal?
The obvious benefit of a Consumer Proposal is that it allows you to solve the issues you are having with your debts, but what are the specific benefits?
- Stop interest
- Stop collection calls and letters
- Stop garnishment of wages or assets
- Stop/Prevent legal actions by unsecured creditors
- Pay less than you actually owe in unsecured debt
- Consolidate all debt payments into one monthly payment
- Become debt-free in five years or less
- Regain control of your budget
- Learn financial skills for the future
What are the steps and timelines involved in a consumer proposal?
|1.||Meet with the Licensed Insolvency Trustee to discuss your options.|
|2.||Provide the Licensed Insolvency Trustee with the required information to prepare the Consumer Proposal document package.|
|3.||Sign the Consumer Proposal document package.|
|4.||The Licensed Insolvency Trustee will file your Consumer Proposal with the Office of the Superintendent of Bankruptcy and mail copies to all of your creditors.|
|5.||At this point, if you have not already done so, you would stop making any payments to your unsecured creditors, interest stops, collection calls stop, any legal actions stop and no new legal actions can be started relating to the collection of any unsecured debts.|
|6.||After 45 days, either your Consumer Proposal will be deemed approved by the creditors, or if a meeting has been requested by one or more creditors holding at least 25% of the proven debts, the meeting will be held within 21 days.|
|7.||At the meeting, the creditors will have an opportunity to discuss the Consumer Proposal document package and ultimately vote on the acceptance or rejection of the Consumer Proposal by a simple majority vote where each $1 of proven debt equals one vote.|
|8.||If the Consumer Proposal is rejected by more than 50% of the voting debt, the Consumer Proposal is terminated and the creditors regain their collection rights.|
|9.||If the Consumer Proposal is accepted by more than 50% of the voting debt, the Consumer Proposal continues.|
|10.||If in the 15 days after deemed creditor approval or acceptance of the Consumer Proposal at the meeting, there is a request for Court Approval of the Consumer Proposal, which is not a common occurrence, the Licensed Insolvency Trustee will request and attend a court hearing for the approval of the Consumer Proposal. You do not need to attend this court hearing.|
|11.||If the Court rejects the Consumer Proposal, the Consumer Proposal is terminated and the creditors regain their collection rights.|
|12.||If the Court Accepts the Consumer Proposal, of if there is no request for Court Approval of the Consumer Proposal within 15 days after the creditor acceptance, the Consumer Proposal is deemed Court approved and the Consumer Proposal is binding on all unsecured creditors, regardless of if, or how, they voted.|
|13.||You are required to attend 2 financial counselling sessions. The first is to be completed between 10 days after filing and 90 days after filing. The second is to be completed by the end of the Consumer Proposal.|
|14.||All that is left is to make your monthly payment over the term of your Consumer Proposal.|
|15.||Once the payments and the counselling have been completed, you will received a Certificate of Full Performance which releases you from most, if not all of your unsecured debts. (Certain debts cannot be released through the insolvency process and are discussed in detail here)|
What are my responsibilities in a consumer proposal?
You must provide the Licensed Insolvency Trustee with your complete financial picture, which includes:
- A complete list of assets
- A complete list of debts, including unsecured debts, secured debts, Tax debts, and Student Loans
- A complete budget including all incomes and expenses for all members of your household.
- Attend 2 financial counselling sessions
- Attend a meeting of creditors, if one is required
- Make the agreed-upon payments
- Keep the Licensed Insolvency Trustee up to date on any address or telephone contact details.
- Assist the Licensed Insolvency Trustee by answering any questions that may come up during the administration of the Consumer Proposal.
Will it impact my credit report?
Your credit report is a history of your relationship with your creditors and your debts. This history is used by the creditors to gauge what level of risk there is in advancing new credit to you. The combination of the history, the amount of credit you hold and the level of risk is what allows each creditor to generate your “Credit Score”. The higher your score, the better the chances of receiving new credit at lower rates.
If you are in need of a Consumer Proposal or a Bankruptcy, your credit history is likely to have already been affected to varying degrees as a result of missed payments, collection actions or simply the total amount of credit that you have available, even if you are not using it.
Upon the filing of a Bankruptcy or a Consumer Proposal, the credit reporting agency receives notice of the filing from the Office of the Superintendent of Bankruptcy. When this is reported on your credit history, your credit score will drop.
A Consumer Proposal starts as an R9 score but upon completion improves to an R7 score until it is removed (keep in mind that if you stop making your payments for more than 4 months, you will have an R5 score).
A Bankruptcy, on the other hand, results in an R9 score from the filing of your bankruptcy until the bankruptcy is removed from your credit history.
How long will a Consumer Proposal remain on my credit report?
A consumer proposal can remain on your credit report a maximum of 6 years from the date you file based on the new guidelines from TransUnion and Equifax. Less time than bankruptcy. Bankruptcies, on the other hand, remain on your account for 7 years, and increases every time you file one.
Keep in mind that if you pay your consumer proposal faster, the length of time it appears on your credit report is shortened. This is another advantage that you don’t get when you file for bankruptcy.
TransUnion removes a consumer proposal from your credit report either:
- 3 years after you pay off all the debts included in the proposal, or
- 6 years after you sign the proposal (whichever is sooner)
A consumer proposal that is completed in five years, will be removed from your credit report one year later (six years from the date you filed).
A consumer proposal that is completed in two years, will remain on your credit report an additional 3 years from the date you completed payment (for a total of five years).
A consumer proposal paid immediately as a lump sum, will be removed three years after the completion of the proposal.
How long will a bankruptcy remain on my credit report?
TransUnion removes a bankruptcy from your credit report 7 years after you’re discharged in the following provinces:
- New Brunswick
- Newfoundland and Labrador
- Prince Edward Island
If you declare bankruptcy more than once, the bankruptcies will appear in your credit report for 14 years.
What happens when I complete my consumer proposal?
When your Consumer Proposal is completed, the Office of the Superintendent of Bankruptcy will likely send notice of the completion to the Credit Reporting Agencies. You should check your credit report within 3-6 months after completing your Consumer Proposal to ensure that the completion of your Consumer Proposal is reflected on your report.
Your credit report is your personal information, and only you can request corrections or changes. If the completion of your Consumer Proposal is not updated on your credit report, you should send a copy of the Certificate of Full Performance to the credit reporting agencies along with a request that they update your records accordingly.
Consumer Proposals with David Sklar & Associates
Licensed insolvency trustees like David Sklar & Associates have the authority to contact creditors and hold them to agreements. So, when you sign onto a consumer proposal, and a creditor accepts it, that agreement is legally binding. The creditor has to adhere to the terms set in the proposal from that point forward.
If you are struggling financially and looking for relief, call David Sklar & Associates and book your consultation today. We offer consumer proposals in Toronto to help honest people who are drowning in unsecured debt and need an effective way out. We also offer division one proposals and personal bankruptcy services for people who can’t meet the qualifications of a consumer proposal. You have options. We can help you pick the right ones and get the relief that you’re looking for