Consumer Proposals: Frequently Asked Questions
A Consumer Proposal (also referred to as a Proposal to Creditors) is essentially a debt settlement or debt negotiation with your creditors. It is an offer to unsecured creditors to settle the debt amount and/or delay the payment of your debts. It may be negotiated that you either make a lump sum payment or several payments over an extended period of time. The proposal often provides for your creditors to receive less than the full amount they are owed but more than they would receive if you were to file for bankruptcy.
Here we provide answers to frequently asked questions about negotiating a partial debt repayment and/or debt repayment terms through a consumer proposal:
- What are the benefits of a consumer proposal?
- Who can make a consumer proposal?
- How do I make a consumer proposal?
- How does a proposal get accepted?
- What happens if the proposal is rejected or I can not fulfill the terms?
- Can the proposal be changed or amended?
What are the benefits of a consumer proposal?
Some of the benefits of a consumer proposal are:
- You may avoid bankruptcy;
- A stay of proceedings prevents creditors from continuing any legal actions and garnishments;
- It is preferable to a bankruptcy in terms of re-establishing your credit rating;
- Your assets do not automatically vest in the trustee;
- It may be better for enabling you to carry on a business or a profession than under a bankruptcy; and,
- Once approved by the court, all creditors are bound by the proposal, not just the creditors who voted in favour of the proposal.
Who can make a consumer proposal?
If you owe less than $250,000, excluding a mortgage on your residence, you are eligible to file a consumer proposal. If you owe more than $250,000, you may still file a proposal but some different rules will apply which can be explained by the trustee.
How do I make a consumer proposal?
First, you call or meet with a licensed insolvency trustee. The trustee will assess your financial situation and explain the options available to you. The trustee will act as the “administrator” of the consumer proposal.
Second, you will complete an application form which will provide the administrator (trustee) with more detailed information about your financial affairs. The administrator will then prepare a number of documents which you will sign in order to make the proposal. The proposal will be sent to all of your creditors along with a report prepared by the administrator recommending whether or not the proposal should be accepted.
How does a proposal get accepted?
Your creditors will have up to 45 days to consider whether or not to accept your proposal. A creditor may send a vote to the administrator. If none of the creditors submit a vote, they will be considered to have accepted the proposal. A meeting of creditors will be held to consider the proposal if 25% or more of the creditors vote against it. If creditors do not request a meeting, the proposal is deemed to be accepted. Upon acceptance of the proposal, you will begin making the required payments to the administrator who will distribute the proceeds to the creditors. Once you have fulfilled the terms of the proposal, you will receive a Certificate of Full Performance of Consumer Proposal and the balance of your debts will then be extinguished.
What happens if the proposal is rejected or I can not fulfill the terms?
If the proposal is rejected or your payments are three months in arrears, your proposal will be in default and you may no longer be protected from your creditors. Your creditors may then initiate or continue legal proceedings against you.
Can the proposal be changed or amended?
Creditors who vote against proposals will often suggest proposal terms that would be acceptable to them. If your proposal does not appear to have the required support of the majority of the dollar value of creditor claims, it can be amended in order to gain that support prior to the meeting of creditors. If your income drops or your circumstances change following the acceptance of your proposal, it can be amended as long as no default has yet occurred. While amending your proposal terms will normally provide you with an opportunity to continue to complete the proposal, it also once again requires the support of your creditors.
Further information on consumer proposals
If you would like to know more about debt negotiation and debt settlement through a consumer proposal, please feel free to contact us for a free confidential consultation. Or, if you prefer, fill in our Free Case Evaluation online form, and we will get back to you with our feedback on your situation and your options.