Consumer Proposal

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A Consumer Proposal Could Be Your Best Option

Filing a consumer proposal may be a great alternative to filing for bankruptcy. We’ve worked with clients who are unable to repair their debts and need more time or are seeking to stop interest charges from accounting further. There’s no need to give up your home or personal belngings in order to repay debts. We will discuss whether filing a proposal is the right step for you to take.

Unlike a debt management plan which creditors are not obligated to accept or participate by law, consumer proposals protect the debtor against any legal action because it is a legal contract that is recognized in the courts of law. There are cases when the creditor chooses not to accept the debt management plan and hence they can go ahead and take legal action against you. However, this cannot happen when you file the said proposal. As soon as you file this proposal, you will stop receiving calls from creditors who are threatening to take legal action.

There are various benefits to filing consumer proposals

Debts are frozen and interest does not accumulate further

Collection calls are likely to stop

Creditors cannot pursue legal action against you

You are usually allowed to pay a portion of the money you owe

All creditors must abide by the proposal once majority of them vote for it to be approved

You get to keep your assets like your home and car

Consumer Proposal FAQ

Q:How do I file a consumer proposal?

A: Some of the documents you will need to provide are the Statement of Affairs, a Statement of Income and Expense, the Assessment Certificate, and the consumer proposal to creditors. Some of these documents are required by bankruptcy law and they are meant to give creditors enough information to enable them to decide whether or not to go for your proposal.

Q: What happens after filing a consumer proposal?

A: Once you file the proposal and send the notice, your creditors have 45 days to respond. The response could be a vote to accept the proposal, a vote to reject it, a vote to accept the proposal and issuance of alternative terms, submitting a proof of claim without voting on the proposal, or doing nothing at all. If the creditors do nothing at all, the administrator is allowed to contact the creditors to remind them to send the proof of claim and to ask for a vote, but he/she is not allowed to solicit for a vote since he is an officer of the court.

If the proposal is accepted, there will be 15 days within which an objection can be filed. If there is no objection, it will be deemed that you have the court’s approval to go on with the consumer proposal.

Q: What happens if the majority of the creditors reject the consumer proposal?

A: If 25% or more of the creditors reject the terms of the proposal, the administrator will schedule a First Meeting of Creditors. This meeting is meant to seek agreement with a majority of your creditors. Possible outcomes of the meeting are increasing the amount you are to pay the creditors or the proposal being rejected, in which case you will have no option but to file for bankruptcy.

Q: What happens if I can’t keep up the payments?

A: Your circumstances may change (such as loss of your job), making it impossible to meet your repayment obligations. The law allows you to defer or miss 2 payments without any consequences. If you miss more than 2 payments, the proposal automatically fails.

Q: What can I do if I’m at risk of missing 2 repayments?

A: If you are at risk of missing 2 repayments, you can always amend the proposal. Contact the proposal administrator in good time so that he/she can work out a solution such as adding the missed payments to the end of the payment schedule, changing the terms of the proposal (called Amendment) with the agreement of your creditors, or filing for bankruptcy.

Q: Can I leave a creditor out of the consumer proposal?

A: No, all your unsecured creditors must be included in the proposal. Note some unsecured debts such as court fines, support, and alimony payments, and students loans that are less than 7 years old are not included in the consumer proposal in the first place and you have to make other arrangements to repay them.

Q: What happens after completion of the consumer proposal?

A: Once you are done with your repayments, your administrator will send you a Certificate of Full Performance, which is proof that you have cleared the debt and the balance of the debt has been forgiven. You will also get a Statement of Receipts and Disbursements and a Notice of Taxation of the Administrator’s Accounts and the Discharge of the Administrator. The Official Receiver will then notify credit bureaus of the end of the consumer proposal and you can then start rebuilding your credit. You personally don’t have to do anything.

Q: Who qualifies for a consumer proposal?

A: It is not enough that you be insolvent to qualify for a consumer proposal. To be eligible, you must be a person (businesses are not eligible), you must be incapable of meeting your debt obligations and the debts must be due, and the debt must be less than $250,000 (excluding the mortgage on your principal residence, otherwise you will need a Proposal to Creditors instead of a consumer proposal).

Other eligibility conditions are that you must have a stable income that can support monthly payments, you must not have prior proceedings open, and the trustee handling previous filings (Notice of Intention and Proposal to Creditors) must have been discharged.

If you had a previous consumer proposal that was annulled, you have to pay all the claims filed in the prior proposal in full (or the claims must have been extinguished by a bankruptcy) before you can file another consumer proposal.

Q: If I share a debt with someone else, can I file a consumer proposal jointly with that person?

A: It is not uncommon to share debts with other people (such as in the case of co-signing or guaranteed loans). If this is the case, you can file a consumer proposal together (this is called joint filing). To be eligible, substantially all or all the debts of the individuals must be similar and the total debts must not be more than $500,000 (excluding the mortgage on principal residences).

Q: How long does a consumer proposal stay on my credit report?

A: The time taken by a consumer proposal on your credit score varies. It is affected by several factors, the most important being the number of consumer proposals you have filed. In Canada, the agencies that report and keep track of credit history are Equifax and Trans Union. For your first consumer proposal, it will be removed typically 3 years after discharge. For your second consumer proposal, the duration increases significantly, but not as long as that of a bankruptcy which stays for 14 years.

Q: Can I file a consumer proposal if I’m already bankrupt?

A: Under Section 66.11 of the Bankruptcy and Insolvency Act, this is possible. The Act envisions a change in circumstances for individuals who have already declared bankruptcy. As an example, if you get a new job after filing for bankruptcy and your new earnings are able to support monthly repayments, you could go for a consumer proposal that will extend the repayment period and make payments more manageable. This is win-win because your creditors will get more than they would have were you bankrupt and you will disentangle yourself from the chains of bankruptcy.

Q: What are the payment terms in a consumer proposal?

A: The basic rule when determining the portion of your debt to offer your creditors is that the offer must be more than they would have gotten had you filed for bankruptcy. You must show your creditors and trustee that you are able to pay the monthly repayments. Generally, you will repay a reduced 30% to 40% of your original debt during the consumer proposal.

You will have a maximum of 60 months within which to clear your debts. If you come into money, you can offer a lump sum payment or pay more to shorten the proposal term.