What Happens if I Default on My Consumer Proposal

As the average Canadian household debt continues rise, the filing of Consumer Proposals to deal with debt is becoming a popular alternative to Bankruptcy.

Consumer proposals are administered by Licensed Insolvency Trustees (LIT) and typically allow the debtor to pay back all, or a portion of their unsecured debts, with one monthly payment, spread out over a reasonable period of time.  Proposals can also deal with debts by way of lump sum payments.

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

Usually secured creditors holding a lien or mortgage on a vehicle or house wish to continue being paid in accordance with their existing agreement.  However, if you can no longer afford to keep the house or vehicle or wish to give them up, the Proposal will deal with that debt.

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. The Proposal will also stop all collection activities, including phone calls, wage garnishment or other legal proceedings initiated by the debtor’s creditors.

A debtor that fails to make more than 2 payments cumulative during the Proposal will have their Proposal annulled and creditors can resume collecting their balances plus interest less any payments made. A default on an Ordinary Proposal will automatically put the debtor into Bankruptcy.  While a default on a Consumer Proposal will not automatically result in a Bankruptcy, however, the debtor cannot file another Proposal.

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, FrederictonCharlottetown or Dartmouth - it's your choice..