Get Headed in the Right Direction with a Consumer Proposal
What is a Consumer Proposal?
When you are having issues paying debts the government has a process where your loans and credit card debts can be legally reduced.This process is called a consumer proposal.
A consumer proposal is a legal agreement between a person who owes money to creditors where the debt can be reduced instead of filing for bankruptcy. Consumer proposals are legal applications administered by a licensed insolvency trustee.
The insolvency trustee acts as a “Consumer Proposal Administrator” under the office of the Superintendent of Bankruptcy of Canada. In a consumer proposal, the proposal reduces the amount of unsecured debt owned to your creditors.
The amount owed can be reduced by up to seventy (70%) percent, getting you out of debt in five (5) years or less.
★★★★★ My husband suffered a heart attack and was off work for 6 months. My job was just part time and we fell behind with the bills and payments. In 30 years we had never missed a payment. The creditors started calling and when my husband did return to work they garnisheed his paycheque.
We live in Durham region so we went to the Oshawa office and spoke with Kelly. Kelly was very understanding and she explained all our options and got us on a consumer proposal. We’ll be out of debt in just over 3 years. The garnishee was stopped and we can sleep at night. Many thanks, and I highly recommend YanchDey. Debbie S. Oshawa.
Consumer Proposals Protect You
When you file a consumer proposal this gives you protection from debt collection whereupon;
- all garnishee of wages are stopped,
- no civil action can be taken by a creditors to sue or seize your property,
- creditors must stop phone calls or efforts to harass you into paying your bills, and
- no further interest may be added any debts.
In a consumer proposal you agree to pay a portion of what you owe, and your creditors agree to receive the lessor amount in lieu of you filing for bankruptcy.
How does a Consumer Proposal Work?
- what do you owe,
- who do you owe it to,
- about your family situation e.g. who is working,
- what is your household income, and
- what are your expenses.
From the information you provide, the proposal administrator completes an assessment and will give you options as to whether a consumer proposal is right for you.
Alternatives to Consumer Proposals
After reviewing your financial situation the consumer proposal administration may suggest alternatives such as;
- credit counselling
- a debt consolidation loan or debt management plan,
- a consumer proposal, or
- filing for bankruptcy
The goal is to find the right solution for your finances, to deal with your credit and creditors and to get you out of debt.
Setting Up a Consumer Proposal
When you and the insolvency trustee decide to apply for a consumer proposal the administrator will:
- total all of your unsecured debts and credit
- decide with you what you can afford to pay each month
- decide with you how many months it will take to pay the amount
- prepare and present the proposals to the creditors on your behalf
For example, if your income was 3,000 dollars per month, and after paying utilities, food, your car payment and rent you have $600 dollars left to pay your bills. The trustee would then go to the creditors and advise them about your expenses and financial situation.
Dealing with Creditors
In a consumer proposal, the administrator deals with the creditors. The administrator contacts the unsecured credit holders and tells them that you are having financial difficulties. The proposal administrator advises the creditors that you are applying for a consumer proposal. Your creditors will be told that you will be making repayments to avoid filing for bankruptcy.
The trustee would explain that you can only pay “for example” 40% of what you owe and you’re prepared to make monthly payments until the debt is paid.
Should the proposal administrator be unable to come to an agreement, you may have to file for bankruptcy. If you have to file for bankruptcy they would receive nothing on credit that they have provided to you. You will never speak to the unsecured credit holders, we do that for you.
The Creditors Review the Credit Proposal
When the consumer proposal is presented to the credit holders they have an opportunity to vote to accept or reject the proposal. If the unsecured creditors accept the terms, you make one monthly payment to the creditors through the proposal administrator.
If the proposal is rejected, the consumer can consider a debt consolidation loan or filing for bankruptcy. Where a bankruptcy is filed, the credit holders may receive little or nothing on the loans or credit held. Subsequently most consumer proposals are accepted.
What is Unsecured Credit in a Consumer Proposal?
There are usually two types of credit available to consumers; unsecured credit, and secured credit.
Unsecured credit is credit that you receive where there is nothing to back it up or no security provided for the credit. Examples of unsecured credit are;
- credit cards, company credit card cards and gas cards
- utility bills like electrical, water or gas bills
- cell phone or telephone bills
- personal loans, rent and medical bills
- student loans
Unsecured credit is credit that was extended without having collateral given for the debt, like your home mortgage or car loan.
With unsecured debt, the debt holder cannot take the property when you stop paying the debt. When you stop paying, the creditor has to go to court and sue you for the cash value of the debt owed.
Secured debt is secured by a tangible piece of property that can be seized if the debt is not paid. For example if you stop making payments on your car or home, then the loan or mortgage holder would come and seize the property.
Why does the Government Have Consumer Proposals
The Canadian government through the office of the Superintendent of Bankruptcies, understands that sometimes good people may financial issues where they need help.
The office believes that having people filing for bankruptcy should be a last resort, and that avoiding bankruptcy and debt relief is not only good for the debtor, but also for Canadian society in general. The government’s goal in having licensed insolvency trustees is to provide:
- financial counselling
- a mechanism for financial support
- encourage good habits in regards to credit and money management.
The goal therefore of government and our agency is to provide help for people who encounter financial issues and to give them an opportunity to get back on their feet.
Filing a Consumer Proposal
You can file a consumer proposal by making an appointment to speak with one of our insolvency trustees about your financial situation. We provide a free consultation to:
- about dealing with creditors
- learn about debt management and strategies
- provide solutions to deal with your debts
The trustee will answer any questions you have about getting out of debt and communicating with your creditors. Should you decide to file a consumer proposal, the trustee will explain the payment terms in a clear easy to understand language.
There is no fee to set up the proposal, and together with the trustee, an affordable plan is set up to get you out of debt by making only one reduced monthly payment. Your payment will be dramatically less than what you are paying now, and structured so that you are out of debt in five (5) years or less. The settlement to your creditors will include all credit card and unsecured loans.
After Filing a Consumer Proposal
Once a the proposal is filed by the trustee:
- the trustee speaks to all of your creditors
- any wage garnishments will be stopped
- no further interest will be applied to any debts you owe,
- collection companies and creditors must stop contacting you about your debts
- you make one monthly payment of a dramatically less amount to the trustee
The trustee takes care of everything for you. You will have to attend two credit counselling sessions after the proposal is accepted, and you must ensure that you do not default on your agreement.
There are advantages and disadvantages to filing for a debt settlement, but for most people in debt a consumer proposal is the best way to consolidate your loans and finances.
★★★★★ After years of struggling with credit card debts, I was getting deeper and deeper in the hole. Finally a friend suggested I speak to a bankruptcy trustee to get some credit counselling and to see if I could settle my debts.
I made an appointment to speak with Kelli Dey who was non judgemental and explained how filing a consumer proposal would get me out of debt and pay off my outstanding loans to my creditors. Now I’m stress free, the calls have stopped and I will be free of debt in five years, Many thanks! Julie Davies, Oshawa.
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This site is for information only and is not meant to replace qualified legal advice by a Licensed Insolvency Trustee the writers shall not be held responsible for any information that may be incorrect or out of date in regards to consumer proposals and getting out of debt. The owners of this website recommend that anyone wishing to learn about how a trustee can deal with your financial issues should contact our office.