1) What is a consumer proposal?
Consumer proposals in BC are an alternative to bankruptcy and a way to negotiate a debt settlement with your creditors. It is an offer made by a debtor to either defer and/or compromise amounts owed to his or her unsecured creditors.
For example, you could propose that you will pay a reduced amount each month, but over a longer payment period. Or you could propose that your creditors be paid only a percentage of what you owe them through a consumer proposal. Depending on the circumstances, this percentage could be as low as 20% to 30% of the total debt outstanding. A proposal can also consist of a single lump sum compromise payment to be made either by a third party contributor (e.g. family member or friend) or from the liquidation of an existing asset.
2) What are the benefits of a consumer proposal?
The benefits include the following:
- It allows you restructure and/or reduce your financial obligations and also avoid bankruptcy at the same time.
- You only need the support of 50% plus $1.00 of the dollar value of unsecured voting creditors in order for the proposal to be accepted and binding on all your unsecured creditors.
- It is an effective alternative to bankruptcy from the aspect of its effect on your credit rating: with a proposal your credit rating is not as adversely affected as in a bankruptcy.
- Your unsecured creditors will no longer be able to take legal steps to recover their debts from you (such as seizing property or garnisheeing wages) unless the proposal is withdrawn, rejected or annulled.
3) Consumer proposal vs. bankruptcy?
The 2 top debt relief options in BC are bankruptcy and consumer proposals. Both are governed by the Bankruptcy and Insolvency Act and are legally binding on your creditors.
A bankruptcy is a legal proceeding filed to surrender your assets in order to receive a discharge from your unsecured debt. It provides rapid financial relief and protection from your creditors.
A consumer proposal is a legal proposal that you file to make an offer to your creditors to settle your debts for less than you owe. You are able to keep your assets but you must be able to afford to repay a portion of your debts.
4) How to file bankruptcy in BC
Bankruptcy is usually the last resort for anyone in financial distress. However, because you must use a Licensed Insolvency Trustee, you are assured that they will explore all other options that are available before you file.
When your Trustee has all your information, they will prepare the initial paperwork and review the bankruptcy process with you again. It is after you have reviewed and signed the paperwork that your bankruptcy begins.
Once your bankruptcy has been filed there is an automatic stay of proceedings – which means that unsecured creditors cannot contact you to request payments or garnish your wages.
5) How long does bankruptcy last?
When you and your Trustee have explored all options and you have chosen to proceed with filing bankruptcy, they will prepare the paperwork. When you have signed the papers, your bankruptcy starts.
Once your bankruptcy is filed, your unsecured creditors cannot contact you to request payment or garnish your wages. You can be discharged from bankruptcy and your debts in as short a time as 9 months. Before your discharge you will be required to attend 2 credit counselling sessions.
Your bankruptcy will affect your credit rating and remain on your credit report for 6 years from your discharge.
6) Does it cost anything to make a consumer proposal?
The payments you agree to make in a consumer proposal are the only payments you will make. However, the trustee, who acts as the “administrator” of the proposal, is permitted to withdraw a portion of the funds available for the creditors in order to cover his fees. The amount of fees allowed are prescribed by the Bankruptcy and Insolvency Rules which may be found at the website of the Superintendent of Bankruptcy.