An alternative to bankruptcy
Owing money you cannot afford to repay can be very scary. However, to get your life back to normal, you need to understand your options. While declaring bankruptcy is one way to solve your financial troubles, it is not the only way. Another option you may want to consider is to make a consumer proposal.
A consumer proposal can only be filed through a licensed trustee in bankruptcy. It is a legal process that allows you to come to a new arrangement with your creditors. An offer is made to settle the debts either by making a lump sum payment (that may come from a third party or relative) or by making regular payments over a period of time. In a consumer proposal creditors usually agree to accept a percentage of what they are owed. The amount you pay into a proposal depends on your personal situation and the amount of money you make.
There are two forms of proposal that can be filed by consumers; Division I and Division II.
To learn more about consumer proposals, review the answers to some of these common questions:
1. Do I qualify to make a consumer proposal?
2. What happens when I make a consumer proposal?
3. What happens if the consumer proposal is rejected?
4. Will I lose my assets in a consumer proposal?
5. For how long will I need to make payments?
6. How much money will I have to pay each month?
7. What if my situation changes, and I cannot make my monthly payments?
8. What are the fees for filing a proposal?
9. Will a consumer proposal affect my credit rating?
10. Can I get a mortgage after a consumer proposal?
11. What are the advantages to a consumer proposal?
12. What is the difference between a bankruptcy and a consumer proposal?
1. Do I qualify to make a consumer proposal?
To qualify to make a consumer proposal, you must:
- Be insolvent, for example you have more debts than assets, or are unable to meet your obligations as they come due.
- You must have sufficient income to make a monthly payment or access to funds to be used as a lump sum payment.
- For a Division I Proposal you must owe less than $250,000 (not including a mortgage on your principal residence).
- For a Division II Proposal the amount and type of debt doesn't matter.
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2. What happens when I make a consumer proposal?
A trustee will help you formulate a consumer proposal that works for both you and your creditors. After the proposal is filed your creditors are notified. In the case of a Division I Proposal a meeting of creditors will be scheduled within 21 days of filing the proposal. The creditors vote at the meeting, either in person or by proxy. In order for a Division I Proposal to pass it requires two thirds in value (one vote per dollar of each creditor’s claim) and a majority in number. Under a Division II Proposal the creditors have 45 days to either accept or reject the proposal. If 50% of your creditors (voting by dollar value) accept the proposal, all your other creditors must accept it as well. For more details contact a licensed trustee.
After your consumer proposal is filed, here is what happens:
- You stop making voluntary payments to your unsecured creditors.
- Garnishments against your salary will stop, except those for Family Support.
- Lawsuits against you will be stopped, subject to Court approval for continuance.
Upon acceptance of the consumer proposal by your creditors:
- You will be responsible for paying either the agreed lump sum or monthly payments to the trustee.
- You may keep your assets (as long as you make your payments to your secured creditors).
- You must attend two financial counselling sessions.
- Best of all, you can solve your money problems without going bankrupt.
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3. What happens if the consumer proposal is rejected?
If your creditors reject the consumer proposal, you still have options: you could change the terms of the proposal and re-present it to your creditors for reconsideration; or; if that does not work, you could still choose to declare bankruptcy. However, even if the proposal is rejected, you will not be automatically bankrupt.
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4. Will I lose my assets in a consumer proposal?
One of the benefits of a consumer proposal is that your assets remain your assets and do not vest in the trustee. In developing a consumer proposal, however, you may wish to consider using some of your assets (like cashing out a RRSP) to pay your creditors.
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5. For how long will I need to make payments?
That depends on your personal situation. The maximum amount of time you can take to pay off a Division II Proposal is five years (60 months), however, a Division I Proposal has no time limit.
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6. How much money will I have to pay each month?
That depends on how much money you have agreed to pay under the terms of the proposal. Your trustee will review your situation and help you to determine what the right amount of money should be for you to complete a successful proposal.
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7. What if my situation changes, and I cannot make my monthly payments?
If you run into difficulty and have trouble making the payments under the proposal there may be options for you to revive the proposal or you may need to consider other options such as bankruptcy. Your Trustee can help you.
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8. What are the fees for filing a proposal?
In a consumer proposal, the trustee’s fee is paid from the money you pay to the trustee under the proposal. When the trustee is helping you to construct the proposal s/he will provide you with detailed information in respect of the costs.
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9. Will a consumer proposal affect my credit rating?
When a consumer proposal is filed it is a Public Record and is reported as such on your Credit Report, the Credit Bureau keeps it on record for its full term. After the proposal is completed your Credit Report will continue to be affected for a further three year term.
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10. Can I get a mortgage after a consumer proposal?
Most people who have completed a proposal find that they will be able to renegotiate an existing mortgage without too much difficulty. They also find that they can get a new mortgage if they have the right combination of down-payment and income (to support monthly payments).
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11. What are the advantages to a consumer proposal?
- You get to keep your assets.
- You can solve your money problems without going bankrupt.
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12. What is the difference between a bankruptcy & a consumer proposal?
A consumer proposal will allow you to keep all of your assets. However, it usually takes longer to complete a consumer proposal when compared to a bankruptcy.
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