So what exactly is a consumer proposal?
A consumer proposal is a formal debt settlement option legislated under the Bankruptcy and Insolvency Act and filed with a licensed insolvency trustee. It allows you to compromise your personal debts by making an offer to your creditors to modify your payments (for a maximum of five years). For example, you may propose that you will pay a lower amount each month, but over a longer period of time. Or you may propose that your creditors accept being paid a percentage of what you owe. Making a consumer proposal will also stop all creditor action (including collection activity and wage garnishment) and will also stop all interest charges.
Making a consumer proposal will result in an R7 credit rating which will remain on your credit report for three years after your consumer proposal is paid in full (filing bankruptcy would result in an R9 rating and would remain on your credit report for six years after you’re discharged).
When you meet with us, we will review all options with you and we will help you decide if this is the best option for you. After the decision has been made to make a proposal, the next step is negotiating the consumer proposal.
When negotiating a consumer proposal, here are a few things you can expect:
Help from your trustee.
From the very beginning, your trustee will be there to guide and assist you. You and your trustee will complete forms that provide a clear and accurate idea of exactly how much you owe and how much you can afford to pay back. Most consumer proposals offer a settlement to creditors for much less than what is owed, and eliminates interest payments. Almost all are accepted at this reduced rate to what you owe. Read about some of our clients who had had success making a consumer proposal.
Your trustee presents the proposal to your creditors.
Once you and your trustee determine what you can afford, the trustee takes the proposal to your creditors for approval. Most consumer proposals offer to pay a percentage of the outstanding balance.
Your trustee acts as the mediator.
Your trustee speaks with your creditors so you don’t have to. Your creditors can’t talk with you, either. In fact, one of the advantages of a consumer proposal is that creditors are forbidden by law from contacting you once you begin the proposal process.
The proposal is accepted or rejected.
Once your proposal is presented to your unsecured creditors, they have the opportunity to review it and have the option to:
- Accept the proposal as presented
- Reject the proposal
- Request a meeting to discuss the terms of your proposal
- Accept the proposal with different terms
- Take no action
Your creditors have 45 days to decide on your proposal. Although there may be a bit of back and forth negotiating, most proposals are accepted. Creditors know they will receive more in payments if they opt for your proposal. They know that if you are forced to file bankruptcy they will lose more than they would receive through a consumer proposal.
With the assistance of licensed insolvency trustee, negotiating a consumer proposal will provide a solution to your debt crisis and help you get a fresh start.