A Consumer ProposalĀ is a structured debt resolution process offered in Canada, enabling individuals experiencing financial challenges to negotiate with their creditors as an alternative to declaring Bankruptcy. The Bankruptcy and Insolvency Act regulates this process and aims to offer a feasible solution for individuals with debts totalling less than $250,000, not including secured obligations such as mortgages.
A Consumer Proposal often provides a more favourable alternative to Bankruptcy for several key reasons. First and foremost, a Consumer Proposal lets you keep your assets and any tax refund, which is often not the case in a Bankruptcy. Additionally, the process is simpler and less demanding; with a Consumer Proposal, your obligations are limited to making the agreed payments and attending two mandatory counselling sessions, rather than the continuous reporting and proof of income submissions required in Bankruptcy.Ā
Another significant advantage is that a Consumer Proposal enables you to begin rebuilding your credit rating sooner. Bankruptcy, on the other hand, leaves a longer-lasting mark on your credit report.Ā
A Consumer Proposal is far less invasive. While Bankruptcy demands monthly financial reporting and close oversight from a Trustee, a Consumer Proposal requires only an initial income report to structure the payment plan, with no future income or tax filings necessary. For many, a Consumer Proposal provides a less stressful, more stable path to debt relief and financial recovery.
How Does a Consumer Proposal Work?
When an individual opts for a Consumer Proposal, they must first consult a Licensed Insolvency Trustee (LIT)Ā to assess their financial situation and facilitate negotiations with creditors.
Key steps involved in the Consumer Proposal process:
Initial Consultation
The process begins with a free and confidential meetingĀ with a LIT to evaluate your financial status, including income, expenses, and total debt owed. This assessment helps determine if a Consumer Proposal is suitable for your situation.
Proposal Development
Following the financial assessment, the LIT will help you create a repayment plan that outlines the amount you can feasibly repay over a designated period. This plan generally extends to five years and may consist of monthly payments that do not accrue interest.
Filing the Proposal
After finalizing the repayment plan, the LIT will prepare and submit the Consumer Proposal to the Office of the Superintendent of Bankruptcy (OSB). This document will detail your debts and the proposed repayment terms.
Creditor Notification
Creditors will be informed of the proposal and are given 45 days to accept or reject it. For the proposal to gain acceptance, it must receive the consent of creditors holding at least 50% of the total debt. If less than 25% of creditors oppose it, the proposal is automatically approved.
Implementation
Once the proposal is accepted, you will make payments per the agreed schedule. Additionally, you must participate in two financial counselling sessions during this timeframe to improve your financial management capabilities.
CompletionĀ
Upon fulfilling all payment obligations, you will obtain a Certificate of Completion from your Trustee, which formally discharges you from any remaining debts in the proposal.
Determining Repayment Amounts
The repayment amount in a Consumer Proposal is calculated based on a thorough review of your financial situation. The Licensed Insolvency Trustee (LIT)Ā will analyze your income and expenditures to determine a feasible amount that you can pay while also ensuring that creditors receive some level of repayment.
Are Consumer Proposals Ever Rejected?
Although most Consumer Proposals are accepted, as creditors generally prefer receiving partial repayment rather than none, there are occasions when proposals may be declined.Ā
Typical reasons for rejection include fraudulent activity or irresponsible financial behaviour on the debtor's part. A rejected proposal may result in further discussions or exploring alternative solutions.
Consumer Proposal - Your Debt Solution?
A Consumer Proposal provides Canadians facing financial difficulties with a viable BankruptcyĀ alternative, enabling them to negotiate manageable repayment plans while safeguarding their assets. It can be a powerful tool for those seeking a manageable path out of debt while avoiding the harsher consequences of Bankruptcy. By negotiating with creditors to reduce debt and create a feasible payment plan, Consumer Proposals offer a structured solution that allows individuals to regain financial stability and move toward a debt-free future.Ā
If youāre considering this option, consulting with a Licensed Insolvency Trustee can help ensure you fully understand the process, tailor the proposal to your situation, and set yourself up for long-term financial health. Taking this step can not only ease financial stress but also provide the foundation for a fresh start.
If you live in BC and need help managing debt, contact Ā D. Thode & Associates Inc., Licensed Insolvency Trustees. Book your FREE consultation to understand your options and take the first step toward becoming debt-free!
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