Understanding Consumer Proposals

Understanding Consumer Proposals

Debt Restructuring
Debt Restructuring

There are two types of proposals that can be filed by an individual:  1) Consumer Proposal - used when the total debts, excluding only the mortgage on your principal residence, are less than $250,000; and 2) Division I Proposal (sometimes called an Ordinary Proposal) is used in other cases, most typically for corporations.

We will focus on consumer proposals as they are most often used to resolve debt when you have the ability to pay all or a meaningful portion of your debts in a reasonable period of time.

Generally, a consumer proposal must offer your creditors something better than they would get if you went bankrupt or there would be no incentive for the creditors to accept what you are proposing.  So, the starting point in determining what to offer your creditors is an analysis of what they would get in a bankruptcy.  The Trustee will do this analysis based upon the information that you have provided and it may be necessary to get an appraisal of some assets before finalizing the terms of your proposal.

Typically, you would maintain payments to secured creditorsholding a lien or mortgage on a vehicle or house.  However, if you can no longer afford to keep the house or vehicle or wish to give them up, the proposal can deal with those debts.

It is not necessary for all of your creditors to agree in order to get a proposal approved, however, it is necessary for the majority of creditors to be in favour of the terms of your proposal for it to become legally binding on all of your creditors.

Once the proposal has been filed, all collection and enforcement actions by your creditors will be stayed.  This means that they cannot commence or continue any such actions pending completion of the proposal process.

When you have completed the terms of your proposal and attended two mandatory counselling sessions, your Dischargeable Debts will be fully settled and you can then continue your life without the burden of these debts.

The following are debts that will not be discharged by your proposal:

  • Fines, penalties and restitution orders imposed by Court.
  • Court awarded damages for intentionally inflicted bodily harm, sexual assault or wrongful death.
  • Debts or liabilities for alimony, maintenance, spousal support or child support.
  • Debts or liabilities arising out of fraud, embezzlement, misappropriate or defalcation.
  • Debts or liabilities resulting from obtaining property or services by false pretences or fraudulent misrepresentation.  Note that this may include Employment Insurance overpayments.
  • Student loans unless you have not been a full or part-time student at any time in the 7 years prior to filing the consumer proposal.

The fact that you filed a consumer proposal will stay on your credit reportfor 3 years after you have completed all of the terms of your proposal.

To determine if a proposal is right for you please contact us for a free consultation.  We provide in person appointments at our Saint John, Moncton, Fredericton and Charlottetown offices or we can provide a consultation over the phone.   Powell Associates Ltd. is a licensed insolvency trusteefocused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses.