A Gentler Method: Why a Negotiated Consumer Proposal Can Be A More Fair and Reasonable Debt Solution

If you have debt problems you also have options. A Consumer Proposal is "an offer to pay creditors a percentage of what is owed to them or extend the time you have to pay off the debts, or both" and, for some people, it can be a much better and more manageable solution than bankruptcy to resolve your debts, particularly if:

  • You want to pay your creditors more than they would get in a bankruptcy.

  • You have high income and could not manage the surplus income payment required in a bankruptcy.

  • You have equity in assets that would take too long to pay within a bankruptcy.

  • You have been bankrupt previously.

  • You want to take advantage of a potentially shorter impact on your credit score.

Fair and Reasonable

You can be as creative as you want in determining the terms of a settlement put forth in a Consumer Proposal as long as it is fair and reasonable and you can get more than 50% of your unsecured creditors (by dollar-value of claims) to accept it. As long as you get over this 50% threshold, it will be binding on all unsecured creditors whether they like it or not. That sounds harsh but it's why this method works for some.

Most consumer proposals are structured as monthly payments over time at less than full payout. Generally, a consumer proposal should provide a higher return or recovery to the creditors than they would obtain in bankruptcy or there is no incentive for your creditors to vote in favour of it. Once the total amount of the settlement is determined and approved, you can pay it out early if you are able to do so and this would accelerate rebuilding your credit.

Also, the fact that you filed a Consumer Proposal will stay on your credit bureau report for 3 years after you have completed all of the terms of your Proposal, which is a shorter period than with bankruptcy.

How a Consumer Proposal Works In Canada

In order to qualify to file a Consumer Proposal, you must have debts of less than $250,000, excluding the mortgage on your principal residence. If you are over this limit, there is another form of proposal that can be filed.

When we review your individual situation, we will consider whether or not a Consumer Proposal (or other forms of proposal) makes sense for you and review the pros and cons of a proposal as compared to bankruptcy and other non-legislated options.

The Government of Canada provides a great explanation of how Consumer Proposals work here. A Consumer Proposal is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). Once you understand how this method works, an LIT can look at your personal situation and help you decide if this gentler method of dealing with your debts can work for you.

A Licensed Insolvency Trustee explains to Mary and Paul that a consumer proposal might be the way to resolve their financial situation. The trustee tells them how a proposal is different from bankruptcy and what they need to do.