What Happens if I Default on My Consumer Proposal

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

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

Individuals can file two types of Proposals:

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 will continue to be paid based on the 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.

All of your creditors don’t need to agree to get a Proposal approved. If the majority of creditors agree to your Proposal, it is 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 two payments cumulative during the Proposal will have their Proposal annulled, and creditors can resume collecting their debts plus interest less any payments made. The creditors could consider filing legal claims against you which could lead to a judgment.

A default on an Ordinary Proposal will not automatically result in a Bankruptcy.

While a default on a Consumer Proposal will not automatically result in a Bankruptcy, the debtor cannot file another Proposal for the same debts.

If you default on your proposal, bankruptcy may be your only option. Bankruptcy doesn’t automatically mean you will lose your house if you file bankruptcy, but you do need to carefully consider if you wish to pursue this route.

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 confidential debt consultation today.

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