Understanding How a Consumer Proposal Works

An individual can file two types of proposals:

1. A Consumer Proposal is used when the total debts, excluding the mortgage on your principal residence, are less than $250,000; and

2. Division I Proposals (sometimes called an Ordinary Proposal) are used in other cases, most typically for corporations.

Consumer proposals are the most commonly used form of proposal to resolve debts 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. If the proposal did not provide a better recovery to the creditors than a bankruptcy, then creditors would have no incentive to accept the proposal. So, the starting point in determining what to offer your creditors is an analysis of what they would get in bankruptcy.

The Trustee will do this analysis based on the information you have provided. 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 and wish to give them up, the Proposal can deal with those debts.

All of your creditors don’t need to agree to get a proposal approved. The majority of your creditors must accept your proposal’s terms for it to become legally binding on all of your creditors.

Once you file a Proposal, your creditors are prohibited from all collection and enforcement actions. Your creditors cannot commence or continue any such activities until the proposal is withdrawn by you or refused by your creditors.

When you have completed the terms of your Proposal and attended two mandatory counselling sessions, your dischargeable debts will be fully settled.

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 seven years prior to filing the consumer proposal.

• The fact that you filed a Consumer Proposal will stay on your credit bureau report for a maximum of 6 years (including the time during your consumer proposal). That means a 5-year consumer proposal will stay on your credit report for 1 additional year after you have completed all of the terms of your Proposal. Equifax Canada – How Long Does Information Stay on My Equifax Credit Report?

So, is a consumer proposal worth it in your situation? Please contact us for a free consultation.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options.  Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.