Consumer Proposals in British Columbia
A consumer proposal is a formal offer that you make to your creditors to settle your unsecured debt at a fraction of the total amount you owe, allowing you to get your finances back on track and avoid bankruptcy.
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What is a Consumer Proposal?
As the name implies, a consumer proposal is essentially a “proposal” made to your creditors to consolidate your debts into one monthly, interest-free payment that you can afford. It is a legal agreement you make to pay back a fraction of your debts to settle them in full without borrowing money from the bank.
Consumer Proposals
Before You Begin
In order to file a consumer proposal, you must meet a few specific requirements, such as having a minimum amount of debt you owe and the ability to pay back at least a portion of that debt to creditors. The main considerations involved in determining if a consumer proposal is the best option for you include:
The Amount of Debt You Owe
You can file a consumer proposal if you owe between $1,000 and $250,000 (excluding your mortgage on a personal residence). If you owe more than $250,000, we can still help you settle your debt. You can file a different type of proposal, but some different rules will apply. Your Trustee will walk you through your proposal options, step by step.
Ability to Manage Monthly Payments
To file a consumer proposal, you need to generate an income that allows you repay a portion of your debt with a fixed monthly payment. Generally, a proposal is paid back over a period of five years; however, you always have the option to increase your payments or make a lump-sum payment at any time with no penalties.
The Need to Protect Your Assets
Unlike bankruptcy, when you file a consumer proposal, your assets are protected from your creditors. When you file a consumer proposal, you offer to settle your debts with a monthly payment and, in turn, you avoid having to surrender your assets. This means you get to keep your home, vehicle, RRSPs, tax refunds and other such assets, all while gaining financial freedom.
Understand the Impact on Your Credit
When you file a consumer proposal, your credit score will be negatively impacted. An R-7 rating will appear on your credit report for 6 years from the date the proposal is filed, or three years from the day the proposal is completed, whichever comes first. Keep in mind, if you’re under financial stress, your credit score may already be damaged by late or unpaid accounts.
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Licensed v. Unlicensed Debt Professionals
Only a Licensed Insolvency Trustee (LIT) can provide access to federally regulated insolvency options, such as a consumer proposal. Before you work with just any organization to resolve your debt problems, it’s extremely important to check their credentials as there are some key differences between a Licensed and an Unlicensed Debt Professional.
LITs are the only debt professionals who are authorized by the Federal government to help consumers manage their debts. When you work with a LIT, you can be certain that you’re receiving debt advice from a fully qualified, reputable professional. You’re also guaranteed the benefits and protection of your consumer rights and transparency throughout the process, which you only get when you work with a LIT.
CONSUMER PROPOSALS The Advantages of a Consumer Proposal
Interest Stops
As soon as you file a consumer proposal, the interest will stop accruing on your debts. Removing interest charges from your debt payments makes a consumer proposal a very affordable and manageable option to repay a portion of what you owe to your creditors and get your financial situation under control.
Collection Calls Stop
When you file a consumer proposal, you automatically enter into something call a “stay of proceedings”, which means your creditors legally cannot contact you for payment and that the incessant collection calls will finally stop. Your LIT will now communicate with your creditors on your behalf.
Protection from Legal Action
The “stay of proceedings” in a consumer proposal protects you from any legal action taken by your creditors. You’ll be protected from creditor harassment, court proceedings, the freezing of bank accounts and wage garnishments. These actions will stop as soon as you file your consumer proposal.
Keep Your Assets
Because you’re making an agreement with creditors to pay off a portion of your debt, you will not have to surrender your assets. In a consumer proposal, there is no “vesting” of assets with your Trustee, so you remain in control of your assets throughout the proposal. As long as you can afford to make the payments, you can keep your home, car and any other assets you have.
One Monthly Payment
Before you file your proposal, you and your LIT will determine a monthly payment that is manageable for you. This monthly payment is fixed throughout the duration of your proposal and the payment will be significantly lower than having to pay all your creditors individually. You also have the option to increase your payment at any time, allowing you to complete the process sooner than planned.
Avoid Bankruptcy
Consumer proposals are an increasingly popular debt solution because they allow you to avoid filing for personal bankruptcy. Avoiding filing bankruptcy also means you avoid both hefty surplus income payments and the significant negative impact to your credit score. With a proposal, you’ll have a clear path to debt freedom and, in 5 years or less, you’ll be debt free.
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Bankruptcy v. Consumer Proposals
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Learn How You Can Avoid Bankruptcy
Watch the video on the left to learn how you can avoid filing for personal bankruptcy by submitting a consumer proposal.
Meet With a Licensed Insolvency Trustee
If the amount of debt you’re in is keeping you awake at night and you’re afraid of answering the phone because it might be a debt collector looking for money, you don’t have to continue living this way.
Fortunately, the Licensed Insolvency Trustees at Smythe Insolvency can guide you through the process of filing a consumer proposal in BC. We’ve helped many satisfied clients turn their finances around and get out of debt with our debt relief services. If a consumer proposal isn’t right for you, we can also guide you through personal bankruptcy.
LEARM MOREJulie’s Story
Facing emotional and financial stress from a difficult divorce, Julie, a 38-year-old mother of three, found herself overwhelmed by joint debts, custody disputes, and the complexity of her situation. She turned to a Licensed Insolvency Trustee at Smythe Insolvency for help, seeking a way to manage her finances and reduce debt while navigating her divorce.
FAQs
Consumer proposals are an increasingly popular alternative to bankruptcy and credit counselling programs for debt relief in BC.
A consumer proposal allows you to settle your unsecured debt and pay back only a fraction of the total amount you’re owing to your creditors.
We’ve compiled a list below of some common questions about consumer proposals to make it easy for you to learn about consumer proposal process and to help you decide if it might be a good debt solution for you.
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:
- Credit card debt
- Unsecured lines of credit
- Personal loans
- CRA debt
- Student loan debt
- ICBC debt
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:
- Mortgages
- Car loans
Some other debts that cannot be included in your consumer proposal are:
- Child support payments
- Spousal support payments
- Student loans (if it hasn’t been 7 years since your last date of study)
- Fines imposed by a court
- Money owed for things stolen
- Property or services obtained through fraudulent circumstances
- Award of damages by a court for intentionally inflicting bodily harm or for sexual assault
All 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.
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.
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. Money you have invested in certain funds will be protected when you file a consumer proposal. 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.
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 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.