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If you are facing overwhelming debt, and are struggling with your financial situation, you may think that your only way out is to declare bankruptcy. However, you have other options for debt relief. One option that many individuals aren’t aware of is called a consumer proposal. This option allows you to propose an alternative repayment plan to your creditors and negotiate your debt down to a fraction of what you owe, which you can pay back in one manageable monthly payment. To help you better understand this process, the team at Smythe Insolvency has compiled a list of our most frequently asked questions regarding consumer proposals and how they work. If you have additional questions not listed here, please feel free to reach out to us.
A consumer proposal is a formal offer to your creditors that allows you to settle your unsecured debts. Secured debts, such as your mortgage or car loan, cannot be included.
A proposal is a debt relief solution that allows you to get things back on track with your finances and is an alternative to bankruptcy.
The amount you pay back with your proposal is significantly reduced and, in some cases, a consumer proposal can reduce your debt by as much as 80%. Most creditors are motivated to accept proposals, even if they are only receiving a fraction of the amount they’re owed, because while they don’t recover all of their money, they generally receive more than they would if someone was to declare bankruptcy.
This process is an excellent option for individuals who need help repaying debts but have a steady income that allows you to make monthly payments.
A consumer proposal can only be facilitated by a Licensed Insolvency Trustee (LIT), formally known as a Bankruptcy Trustee. Licensed Insolvency Trustees are licensed by the federal government and are regulated by the Office of the Superintendent of Bankruptcy
Every person has a unique financial situation, which means they’ll need to consider all their options when deciding how to best solve their problems. A consumer proposal is an excellent alternative to filing bankruptcy and offers numerous benefits. Some of the best parts about filing a consumer proposal include:
A consumer proposal covers virtually all forms of debt, except secured debt. All unsecured debts are eligible to be included in the consumer proposal process. Unsecured debts are debts that are not secured by some form of collateral. These types of debt include:
Consumer proposals can eliminate almost all debts, but there some that can’t be included. Unsecured debts, like credit card debt and CRA debt, are fair game but secured debts cannot be included. Some common examples of secured debts are:
Some other debts that cannot be included in your consumer proposal are:
All of these types of debts cannot be included in a consumer proposal, and creditors of secured debt can still attempt to collect the collateral if you don’t make payments.
Filing a consumer proposal isn’t always the best option for every financial situation and filing a proposal does have a few disadvantages:
You can file for a Consumer Proposal in British Columbia if you have between $1,000 and $250,000 of unsecured debt (excluding your mortgage).
If you’re are dealing with more than $250,000 of unsecured debt, you may still be able to file, but some different rules will apply to your proposal. A Licensed Insolvency Trustee (formally known as a Bankruptcy Trustee) will be able to fully explain this option to you.
A consumer proposal will usually not affect your assets. If you continue to make the monthly payments on your mortgage and car loans as required, you will be able to keep those assets. In addition, if your creditors accept your proposal, you will be able to keep your other assets as well. Any money you have invested in certain funds will be protected when you file a consumer proposal. However, our team will be able to give you more specific information about what will happen to specific assets during the process, as it can vary from case to case.
Yes, you can and in fact it’s often encouraged that spouses file a joint Consumer Proposal if they have joint or common debts. This will allow you to manage your family’s financial situation together.
It’s not required that all debts included in the Consumer Proposal are joint debts, but the debts that are in both people’s names should be the majority of the debt included.
Yes, you can and in fact it’s often encouraged that spouses file a joint Consumer Proposal if they have joint or common debts. This will allow you to manage your family’s financial situation together.
It’s not required that all debts included in the Consumer Proposal are joint debts, but the debts that are in both people’s names should be the majority of the debt included.
When you file your consumer proposal, you are typically required to hand over all your credit cards to your Licensed Insolvency Trustee. It might be difficult to obtain a new credit card while you’re completing your proposal, but you will be to use a prepaid or secured credit card during your proposal to help establish credit during your consumer proposal.
Yes, you can keep your car in a proposal. If you keep up to date with your car loan payments as they come due, you can keep this (and any other) asset.
Though a consumer proposal and bankruptcy both provide a way to relieve debt, there are some key differences between the two options. Understanding these differences will help to make it easier when deciding which option is best for your situation. The primary differences between these two debt relief solutions include:
The answer to this question will depend on what your creditors are willing to accept. In most cases, creditors will agree to accept a proposal that offers to pay only a percentage of what is owed. Creditors are willing to accept proposals because it still allows them to recover more of the debt than a bankruptcy would. This means you will likely only have to pay a percentage of what you owe, which helps you get out of debt faster.
Yes, you can include your student loans in your proposal if it’s been seven years or more since you completed your last day of study.
A Consumer Proposal is the only option to reduce government and private student loans, other than personal bankruptcy.
Your Consumer Proposal can include all debts to Canada Revenue Agency (CRA) including:
If you want to settle your CRA and government debts for less than the entire amount that you’re owing, filing a Consumer Proposal is the only process in Canada that allows you to do this—other than filing for personal bankruptcy. Both options can only be filed by a Licensed Insolvency Trustee (formally known as a Bankruptcy Trustee).
When you file for a Consumer Proposal, it will stop any further interest from accumulating on your debt and will automatically stop any legal action that the CRA has already taken (frozen bank accounts, wage garnishment, etc.).
If your creditors are unhappy with the terms of your proposal, they can choose to reject it. It is the responsibility of your LIT to create a proposal that your creditors will accept. Once the proposal is created, your creditors will have time to review the specifics of the consumer proposal, and then acceptance of it will be put to a vote. The majority of creditors will have to agree to the proposal for it to be accepted. Your LIT will follow these guidelines to help increase the chances of a successful proposal:
The longest a consumer proposal will now remain on your credit report is 6 years from the date you file based on new guidelines set out by the Superintendent of Bankruptcy. A consumer proposal will be noted on your credit report for three years after completion of your Consumer Proposal or six years from the date of filing, whichever comes first.
If you complete your consumer proposal payments in the typical five-year timeframe, the notice will be removed from your credit report one year later (that is, six years from the date you filed).
If you complete your payments in two years, the notice will be removed five years from the date you filed your proposal.
If you complete a lump sum proposal, the notice will be removed from your credit report in about three years and you will still need to attend two counselling sessions to receive your certificate of completion.
Licensed Insolvency Trustees (also known as Bankruptcy Trustees) are the only professional licensed by the federal government and regulated by the Office of the Superintendent of Bankruptcy. A strict code of ethics and rules of professional conduct is upheld and all LITs must comply. And LITs are the only professionals who can help you file a Consumer Proposal or Personal Bankruptcy.
Yes, it is possible to pay off your proposal early. Even though your monthly payment amount will be fixed once your creditors accept the terms of the proposal, you can choose to put more toward your month payment if you get a raise at work or can afford more. Paying off your proposal early will allow you to begin the recovery process sooner, so you can start rebuilding your credit.
To file a consumer proposal, you’ll need the help of a Licensed Insolvency Trustee. You’ll first want to meet with a debt professional to see if you qualify for a consumer proposal. If your debts are high, and you’re not making enough income, you may not be eligible to file a consumer proposal for debt relief and may have to look into filing for personal bankruptcy. Our team will be able to assess your situation and determine the best course of action for you. Once we decide that a consumer proposal is the right choice, we will help you draft one. We’ll take into consideration your debt amount, your income, your expenses, and your creditor’s expectations, helping to increase the chances of a successful proposal. After drafting the proposal, we’ll present it to you for final approval and signing before sending it off to be filed.
If you are interested in learning more about consumer proposals and how they work, please reach out to us at Smythe Insolvency. We are conveniently located across Greater Vancouver and Vancouver Island to help clients find a way out of their debts and begin rebuilding their credit. Contact us today to set up a consultation where we can discuss your situation.