A consumer proposal is a popular alternative to bankruptcy in Canada. You might have thought that bankruptcy was your only way out of your debt struggles.
Well, you would be relieved to know that you have other choices and a consumer proposal is one of them.
Consumer proposals were created by the government to help those struggling with huge debts to be able to repay it without going into bankruptcy.
What is Consumer Proposal
It is a legal agreement between you and your creditors to pay back much less than 100% of what you owe in interest-free monthly payments or in lump sums over a period of five years.
You can pay back 100% of the debt you owe, if that is what you can afford. However, most times creditors will agree to a proposal where they can get a percentage of the debt owed. It allows them to get more back than they would if you were to go bankrupt.
For example, if you owe $40,000 on credit cards, bank loans, payday loans and taxes. It might be possible to negotiate a settlement with your creditors where you pay only half of the full amount you owe.
So, you would essentially agree to pay $400 per month for 50 months, for a total of $20,000. For a consumer proposal and your creditors agree to forgive the rest of your debt.
So it’s a great deal for you and also for the creditors. They would receive more than they would if you filed for bankruptcy.
See Also: What is Accounting – Book Keeping
Filing a Consumer Proposal
Under the Bankruptcy and Insolvency Act, only a LIT can act as a consumer proposal administrator and work with you to negotiate a deal with your creditors.
Your trustee will consolidate all your unsecured debt and look at your income and the substantial items that you may own in order to figure out how much you can afford to pay and how much your creditors might be willing to accept.
The LIT will provide an estimate of what your monthly payments might be. Then explain other alternatives that might work for your situation so you can compare which is the best option for your circumstances.
Once you decide that a consumer proposal is the right option for you, the next step is to gather the necessary documentation and then file your proposal with the creditors.
Once your proposal is filed, this immediately gives you legal protection from the people you owe money to. You can stop making payments directly to them.
Creditors must stop collection calls, sending collection letters and any other activities to collect the debt from you. They also can’t file lawsuits against you or garnish your wages.
Your creditors will then have 45 days to consider your proposal. All creditors included in the proposal will vote to accept or reject your offer.
They can ask to meet with you if they have questions they want to ask. Your trustee will arrange this meeting and represent you throughout the negotiation process.
If the majority of the creditors agree to the proposal, then it becomes a legally binding agreement between you and the creditors.
You then have the legal obligation to make the agreed regular monthly payments. Fulfill other requirements including to attend two mandatory counseling sessions which will cover topics such as budgeting, spending habits, setting financial goals and the responsible use of credit.
If you’re getting calls from creditors because you’re late on payments or losing sleep at night worrying about your debt troubles. A consumer proposal can provide debt relief while allowing you to avoid bankruptcy. Contact us to find out how we can help you.