Understanding Consumer Proposals in BC
If you’re struggling with unsecured debts and finding it hard to make ends meet, a consumer proposal might be the solution you need. This debt repayment plan is specifically designed to help individuals in British Columbia manage their financial challenges.
What is a Consumer Proposal?
A consumer proposal is an agreement between you and your creditors to repay a portion of your debts over a set period, typically up to five years. It’s a legal process administered by a Licensed Insolvency Trustee, offering an alternative to bankruptcy that allows you to keep your assets while making manageable, fixed monthly payments. By negotiating a consumer proposal, you can reduce your total debt, stop interest from accruing, and get relief from collection calls. A consumer proposal provides a structured path to debt relief and financial stability.
What Debts Can Be included in a Consumer Proposal?
Consumer proposals are tailored to handle various types of unsecured debts, including but not limited to:
- Credit card debt
- Personal lines of credit
- Payday loans
- CRA and income tax debt
- ICBC debt
- Student loans (if it’s been over 7 years since you last studied)
How Does a Consumer Proposal Work?
Filing a consumer proposal in BC involves several key steps:
1. Contact a Licensed Insolvency Trustee (LIT)
Begin by reaching out to a LIT, a professional regulated by the federal government. They will assess your financial situation and determine if a consumer proposal is the best option for you.
Working with a Licensed Insolvency Trustee is crucial when considering a consumer proposal. They are the only professionals licensed to oversee insolvency proceedings, including both consumer proposals and bankruptcies. Their expertise ensures that the process is conducted according to legal requirements and that you receive accurate guidance tailored to your financial situation.
2. Develop a Proposal
If you proceed, your LIT will help you draft a proposal detailing how much you can afford to pay each month and the total repayment period, typically five years.
3. File the Proposal
Your LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB), and your creditors have 45 days to vote on it.
4. Voting
If the majority of your creditors accept the proposal, it becomes legally binding for all. You then begin making the agreed payments to your LIT.
5. Payments
Regular payments are made to your LIT, who distributes them to your creditors.
6. Completion
After completing all payments and attending two financial counseling sessions, you’ll be released from all debts included in your consumer proposal, receiving a Certificate of Full Performance.
Benefits of a Consumer Proposal
A consumer proposal offers several benefits to individuals struggling with debt, including:
1. Debt Reduction
You can negotiate a significantly lower amount of debt that you need to pay back to your creditors, and combine all of your debt payments into one interest-free monthly payment that is affordable and fits within your budget.
2. Interest Relief
Interest charges on your debt will stop accruing as soon as you file your consumer proposal, which can help you save money.
3. Creditor Protection
Your creditors cannot take legal action against you or contact you for payment once your proposal is accepted.
4. Single Monthly Payment
Simplify your finances with one monthly payment to your trustee.
5. Financial Counselling
As part of the process, you will receive financial counselling to help you manage your money and set financial goals to set you up with a strong financial foundation in the future.
Consumer Proposal vs. Bankruptcy
Both consumer proposals and bankruptcy are viable government debt relief programs in BC, , but they differ in several key areas:
1. Eligibility
To file a consumer proposal, you must have at least $1,000 in unsecured debt and be able to make payments on the proposal. There is no minimum debt requirement for bankruptcy. However, you must meet certain income and asset limits to be eligible to file bankruptcy.
2. Impact on Credit
Consumer proposals stay on your credit report for three years after completion or six years after filing, whichever comes first. Bankruptcy remains for six to seven years post-discharge. A bankruptcy will remain on your credit report for 6 to 7 years after discharge.
A consumer proposal is generally considered less damaging to your credit rating than a bankruptcy.
3. Repayment Period
Proposals typically involve up to five years of payments, while bankruptcy may require payments for up to 21 months based on income and previous filings.
4. Asset Protection
In a consumer proposal, you keep your assets as long as you continue to make your payment obligations. Bankruptcy may involve liquidating your assets.
Both options have their advantages and disadvantages. The best option for you will depend on your individual financial circumstances. It’s always best to consult with a Licensed Insolvency Trustee to understand all your options and make an informed decision.
What Debts Can’t Be Included in a Consumer Proposal in BC
Certain debts cannot be included in a consumer proposal, such as::
1. Secured Debts
Debts that are secured by collateral, such as a mortgage or car loan, cannot be included in a consumer proposal. These debts must be paid separately or, if you are unable to make the payments, the lender may seize the collateral.
2. Court Fines
Debts arising from criminal offences, such as fines, surcharges, or restitution orders, cannot be included in a consumer proposal.
3. Child & Spousal Support Payments
Debts owed for child support or spousal support payments cannot be included in a consumer proposal. These debts must be paid separately and cannot be discharged through filing for bankruptcy or a consumer proposal.
4. Student Loans
If it’s been less than 7 years since your last date of study, student loans cannot be included in a consumer proposal. However, if it has been more than 7 years since you were a full-time student, or you can demonstrate financial hardship, you may be able to include your student loans in a consumer proposal.
5. Debts Incurred After the Consumer Proposal Was Filed
Any debts that you incur after the filing of your consumer proposal cannot be included in the proposal.
The Disadvantages of a Consumer Proposal
While a consumer proposal can offer several advantages, such as debt relief and protection from creditor harassment, there are also some potential disadvantages to consider, including:
1. Credit Score Impact
Filing a consumer proposal negatively affects your credit score and remains on your report for three years post-completion.
2. Credit Challenges
Obtaining future credit can be more difficult, with higher interest rates or a need for a cosigner.
3. Risk of Proposal Rejection
There is a risk that your proposal may be rejected by your creditors, and if this happens, you will need to renegotiate or consider other options, such as bankruptcy.
4. Limited Debt Relief
As we mentioned above, not all debts can be included, such as secured debts and support payments.
What is a Division 1 Consumer Proposal?
A Division 1 proposal is for those with substantial debt exceeding $250,000. It involves more complex documentation and is often used by business owners or professionals with significant debt. The process is similar to a standard consumer proposal but without a debt limit.
Similar to a regular consumer proposal, a Division 1 proposal is a formal, legally binding agreement between you and your creditors to settle your debts. It allows you to make payments to your creditors over a period of up to 5 years, without having to file for bankruptcy. The terms of the proposal are negotiated between you and your Licensed Insolvency Trustee and must be approved by your creditors.
If you are considering a Division 1 consumer proposal, it’s important to speak with a Licensed Insolvency Trustee who can assess your situation, explain the important differences from a standard consumer proposal, and help you determine whether it is the right option for you. They can help you understand the process and the requirements, as well as the potential benefits and drawbacks of this type of proposal.
A consumer proposal can be a lifeline for those overwhelmed by debt, offering a structured, manageable way to repay creditors while avoiding bankruptcy. To explore this option and understand its implications fully, consult with a licensed insolvency trustee. Their expertise will guide you through the process, ensuring you make an informed decision towards achieving financial stability.
