One option to consolidate your debts is to file a Consumer Proposal. It is a legal process and a matter of public record under the Bankruptcy and Insolvency Act between you and your creditors to repay part of what you owe. The amount you repay is largely based upon your income and what you own, however, it usually significantly reduces the amount of debt you have to repay your creditors.
A Consumer Proposal can only be arranged and administered by a licensed bankruptcy trustee and costs about $1,500 to file. You'll pay an initial setup fee, and if it is accepted by your creditors and approved by the courts, you will pay the balance to proceed. In addition, the trustee will keep 20% of your future payments as a fee for administering your Consumer Proposal. To be legally binding, the creditors who hold the majority of your debt must agree to the proposal. Once they do, you repay the agreed amount over a maximum term of 5 years, and a permanent public record is created in a searchable, online database.
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A proposal has strict conditions. If someone misses 3 payments, the consumer proposal defaults and they are not able to file it again. Creditors will then proceed with collecting on what is still owed, which could include legal action.
How student loans are affected
Not all debts can be included in a Consumer Proposal. Student loans often can’t be included, especially if it has been less than 7 years from when someone stopped studying.
While someone is making payments on their Consumer Proposal, student loan payments aren’t required. However, interest is still added to the student loan during that time.
At the end of the proposal, someone may owe more on their student loan than they did before they filed the Consumer Proposal.
What Happens With Secured Debts and Assets?
Secured debts, like a car loan, also can’t be included in a proposal. Assets tied to secured loans may need to be sold when someone enters into a Consumer Proposal because someone isn’t able to manage the payments any longer. Other times, creditors won’t agree to a proposal if someone has assets they can sell to pay back the full amount of what they owe.
Will Creditors Accept My Consumer Proposal?
There is no guarantee creditors will accept your Consumer Proposal. Each creditor has their own policies and each will consider someone’s overall circumstances carefully. For instance, if someone has a lot of surplus income over and above the Superintendent of Bankruptcy’s monthly expense guidelines, creditors will expect them to be able to repay more of what they owe.
What Happens If I Default On Consumer Proposal Payments?
You can’t file another Consumer Proposal and may need to declare bankruptcy
Having your creditors accept your proposal is only the first step towards resolving your financial difficulties. Many people who enter into a Consumer Proposal have so much difficulty keeping up with monthly payments that their proposal collapses. Once that happens, they are left in limbo being unable to file another proposal and having to consider other options, including bankruptcy.
A Consumer Proposal is a legal arrangement and is a matter of public record. It is also noted on someone’s credit report, and is there for an additional 3 years after the proposal has been successfully completed. How a Consumer Proposal affects credit will depend on what else is on someone's credit report. Learn more about what a Consumer Proposal is and how it works.
Debt Consolidation Options - A Consumer Proposal Is One of Many
You may not need to file for a Consumer Proposal. Explore other options that are available to you
Just like with other debt consolidation options, a Consumer Proposal is right for some people, but not for everyone. It depends on if someone is working, the type of debts they have, how much they owe and their overall situation.
Contact Us for More Information About Filing For a Consumer Proposal
To help you decide if filing for a Consumer Proposal is the right option for you, contact us to find out about all of your debt consolidation options. One of our Counsellors will be happy to look at your whole financial situation carefully and answer your questions. Our appointments are free, confidential and without obligation. Call us at 1-888-527-8999, email us or chat with us online right now.