Understanding Consumer Proposals
There are two types of proposals that can be filed by an individual:
1) Consumer Proposal - used when the total debts, excluding 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 on 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 creditors holding 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, creditors are stayed (stopped) from all collection and enforcement actions. 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 pretenses 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 report for 4 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.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice