Many years ago, the Government created a second path to deal with debt, but many consumers still don’t know about this choice. It’s called a consumer proposal.
You’re probably here because you’ve finally realized you have to do SOMETHING about your debt. Maybe you’re losing sleep at night worrying about all the bills. Perhaps you’re getting calls from creditors because you’re late on payments. Or perhaps you and your spouse are fighting about money issues because there doesn’t seem to be enough to go around every month.
You might have thought that bankruptcy was your only way out of this financial bind. However debt troubles show up, you’re not alone—hundreds of thousands of honest Canadians are in the same boat as you!
There are other choices. A consumer proposal is one of them. The question remains: Is a consumer proposal worth it? Is a consumer proposal a good idea? Let’s explore…
What is a Consumer Proposal?
What is a consumer proposal, and what happens in a consumer proposal, exactly? Very simply, it’s just a deal you make with your creditors, the people to whom you owe money. Typically you pay back much less than 100% of the money you owe, so it’s a great deal for you. It’s also a good deal for the creditors—they will agree to the proposal because you are offering something more than they would receive if you were to go bankrupt.
“A consumer proposal is just a deal you make with your creditors – typically you pay back much less than 100% of the money you owe.”
Another significant benefit of a proposal is that you pay no interest. Once the creditors have agreed to the proposal, you pay a fixed monthly amount with 0% interest. Usually, you have five years to make the payments, but you have the right to pay the proposal off early if you want to.
What Debts Can be Included in a Consumer Proposal?
The answer to this question depends on understanding the difference between secured and unsecured debts. A secured debt is always secured against an asset of some kind, such as a house or a vehicle. If you don’t make the regular payments on a secured debt, the secured creditor you owe money to has the right to take the asset away from you. The most common examples of secured debts are mortgages and car loans.
Unsecured debts are everything else, and you CAN include almost all of these debts in your consumer proposal. This list includes:
Unsecured lines of credit
Student loans if it has been more than seven years since you completed your studies
Here are the types of unsecured debts that you CANNOT include in a consumer proposal: student loans if it has been less than seven years since you completed your studies, court-ordered fines, and spousal or child support payments.
How Does a Consumer Proposal Work?
So what’s involved in the consumer proposal process? The first step is to meet with a Licensed Insolvency Trustee (LIT) such as Powell Associates Ltd. Trustees are licensed and regulated by the Federal Government and are Officers of the Court. Learn more about Trustees here.
“LITs are the only people with the legal power in Canada to provide you with protection from the people you owe money to.”
A Licensed Insolvency Trustee (LIT) is the ONLY professional with the legal power to provide you with protection from the creditors. No other agencies, such as credit counsellors or the various debt consulting firms that operate in Canada, have these legal powers or the ability to file a consumer proposal.
When you call our bankruptcy trustee at Powell Associates Ltd. the first step is to gather some information from you. We can do this in person, by video or over the phone. Either way, we will ask about how much you owe and to whom. We’ll look at your income and the substantial items that you may own, such as vehicles and a house if you’re a homeowner.
Finally, we will find out how many are in your family. All of this information gives us a clear picture of your financial situation. Next, we’ll schedule a meeting with you.
We’ll let you know what all of your choices are to deal with your debt at the initial meeting. Based on your information, we can estimate what your payments in a proposal might be. Together, we can look at your budget, and you can decide whether filing a proposal is the best option or whether filing for bankruptcy makes more sense.
“Based on your information, we can estimate what your payments in a proposal might be. We want to set you up for success!”
If there are any other ways of addressing your debt besides a proposal or bankruptcy, we’ll let you know those as well. We want to set you up for success! If you are filing a consumer proposal, we want to make sure the payments will be affordable for you while still acceptable to the creditors.
Once you decide to work with us, the next step is to provide us with documentation to prove your income, debts, and assets’ value. Once this documentation is complete, we meet with you again, and we can file your proposal with the creditors.
“Once your proposal is filed, the creditors must stop their collections activity – the nasty calls and and they can’t file a lawsuit or garnish your wages!”
Filing the proposal gives you formal, legal protection from the people to whom you owe money. You stop making payments directly to them. The creditors must stop any further collections activity—those nasty calls will finally come to an end! They also can’t file lawsuits against you or garnish your wages.
The proposal filing starts a formal, legal clock ticking. From the time it is filed with your creditors, they have 45 days to consider your proposal and decide whether to agree with it or not. Most of the time, the creditors agree with your initial proposal offer: after all, your creditors are receiving more money than if you filed personal bankruptcy. Generally, creditors prefer consumer proposals to personal bankruptcy and are motivated to agree with them.
One aspect of how consumer proposals work is a real benefit to you; you don’t need to get all the creditors to agree with it. The consumer proposal includes all of your debts – you make one payment every month to deal with your debt instead of keeping track of multiple payments.
Another advantage of a consumer proposal is that you can include tax debt owed to Canada Revenue Agency! Once those creditors that control 50% of the debt agree with your consumer proposal, it becomes legally binding on all creditors.
Sometimes, a majority of your creditors don’t agree with your initial proposal. That simply starts a negotiation process with them. They think you can afford more than what you offered in the consumer proposal.
“Sometimes a majority of your creditors don’t agree with your initial proposal. That simply starts a negotiation process with them that we will help you with.”
At Powell Associates Ltd., we will look at their counter-offer to you and recommend the best response to them. Often, a modest increase in the amount of the payment you offer will get enough of the creditors on board to finalize the deal, regardless of whether they all agreed with it.
Once enough of the creditors agree to the proposal, the proposal becomes legally binding on you and the creditors. From then forward, you only have two obligations: make the regular monthly payments, and attend two mandatory counselling sessions. We will schedule those sessions with you; they cover some vital topics, including budgeting, spending habits, setting financial goals and the responsible use of credit.
The Pros and Cons of a Consumer Proposal
Many consumers choose a consumer proposal over a bankruptcy. We wrote an article on the 9 most common reasons to file a consumer proposal instead of personal bankruptcy.
The pros are:
It allows you to avoid more severe action. It can be tough to decide to tackle your debt head-on, but there’s one thing we’ve learned over the years: waiting to deal with your debt rarely improves the situation!
You typically pay much less than the total amount of the debt back, and the payments are in a manageable 5-year plan.
You get immediate protection from your creditors once the consumer proposal is filed. Creditors can’t garnish your wages or take any other legal action against you. They can also help with frozen bank accounts.
The proposal includes all of your debts in one affordable monthly payment with 0% interest.
Your monthly payments in a consumer proposal may be lower than your monthly payments would be in personal bankruptcy because the payments are usually over five years.
The proposal includes everyone you owe money to, and the terms of the consumer proposal bind all the creditors. Once completed you will receive a release from most creditors.
You feel better about dealing with your debt, as you have at least paid back what you can afford to.
You keep your assets, unlike in personal bankruptcy, where you may have to give up some of your assets, such as your house.
Some people work for institutions where filing bankruptcy has to be disclosed and could risk employment—filing a consumer proposal avoids that difficult situation.
Finally, your credit rating, which will take a hit when filing either a consumer proposal or personal bankruptcy, can be repaired sooner when you have filed a consumer proposal versus filing personal bankruptcy. Learn how a consumer proposal or bankruptcy impacts your credit rating.
Of course, the advantages of consumer proposals must be weighed against the cons. We are often asked ‘How bad is a consumer proposal’ so let’s explore the cons.
The cons are:
There are very few!
The primary consideration is whether you can afford to make the monthly payments in a consumer proposal. In discussions with us at Powell Associates Ltd., we’ll look at your budget and assess whether your consumer proposal payment is affordable. If it turns out you can’t afford the consumer proposal payment, then filing personal bankruptcy may turn out to be the best choice for you, and we will assist you with that.
In some situations, an individual can complete a bankruptcy within nine months. Some individuals, especially those with lower incomes, may feel better addressing and completing their debt obligations more quickly than the typical five-year period for a consumer proposal.
Take the Next Step!
Powell Associates Ltd. has helped thousands in New Brunswick, Nova Scotia, and Prince Edward Island overcome their debt. We understand that unexpected financial setbacks can happen. We offer debt solutions to reduce your stress and worry. Schedule a FREE CONSULTATION with one of our LITs at any time to discuss the best option to fit your unique financial situation.
Our experienced team is dedicated to finding a debt solution you can afford and will review all debt relief solutions.
There are no additional fees or interest charges. The cost of filing the consumer proposal is included in the monthly payments to your proposal.
We will meet with you as often as you need. Filing a proposal or bankruptcy is a significant life decision—we’re here to give you the tools and advice to make the best decision possible. The key is that the decision to proceed and how to proceed is yours; we will not push you into something you’re not comfortable with!
You will always receive prompt responses and resolutions from our trustees and staff.
We will always be fully open and transparent with you—your debt has already caused enough stress so you don’t need any unpleasant surprises.
“You must gain control over your money or the lack of it will forever control you.”-Dave Ramsey
Matt Munro has been a Licensed Insolvency Trustee (LIT) since 2003 and a Chartered Professional Accountant (CPA) since 2008. This article was written by him when he was employed at Powell Associates Ltd.