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Debt Limits and Consumer Proposals

What is a Consumer Proposal?

A Consumer Proposal (“CP”) is a legal debt settlement arrangement you can file in Canada if you feel trapped by your debt and want to negotiate with your creditors to work your way out of it. If accepted, the CP allows you to pay a set percentage of your debt amount to the lender, extend the time to pay the debt, or do both.

A Licensed Insolvency Trustee (“LIT”) is the only person who can administer the consumer proposal and they will help you come to an agreement with your lenders and set up a schedule and a fixed repayment amount that works for you. When you file your consumer proposal, you’ll retain your assets like your home, car, valuables, etc. That sets this program apart from bankruptcy.

Debt Limits Breakdown

While a CP is an excellent solution for people with too much debt, it’s not for everyone. Some people are eligible for a CP and will benefit from it while others aren’t eligible or don’t require it. This depends on the amount of debt you have. Here’s a small guide that can help you understand different levels of debt and how that can impact your CP application:

$10,000 or Less – We don’t recommend filing for a CP if your debt is less than $10,000.  A CP can have a negative impact on your credit score and will be on your credit record for the duration of the CP term plus 3 years after that.

In most cases it is better to work out an agreement with creditors directly. Usually creditors are willing to accommodate a monthly repayment plan when it comes to smaller loans.

$10,000 to $250,000 (not including your mortgage) – This is where a Consumer Proposal will prove to be the most useful. Your LIT will work on a proposal with you and will come up with terms that your lenders would be most likely to agree to and with a monthly payment amount that you can afford. They’ll file the Consumer Proposal with the Office of the Superintendent of Bankruptcy (“OSB”) and send a copy to your creditors.

After the proposal is sent out, your creditors have 45 days to respond with an acceptance or a rejection. If the proposal is accepted, you’ll have to make the payments as per the agreement and attend two mandatory credit counseling sessions.

If the proposal isn’t accepted, your trustee will work with you to consider new proposal terms to come up with something that’s more likely to be accepted and still be comfortable for you. They might also propose other alternatives to help you with your debt.

$250,000 and More (not including your mortgage) – If you have debt of more than $250,000, you’re not eligible to file a Consumer Proposal. You can however file what is called a Division 1 Proposal to your creditors.  A Division 1 Proposal has some important differences from a Consumer Proposal, but the goal is the same, which is to find a formal settlement solution for your debts.  There’s no upper limit to the debt amount for this type of proposal and you can restructure your debt like a corporation or a business establishment would in order to pay it back more comfortably. The process is a little more complicated and has a few added rules to ensure the debt is handled responsibly and carefully. You’ll also need a LIT’s service and advice to file this proposal.

If you want to know more about debt limits, consumer proposals, or need a free consultation, just give us a call here at Brief Trustee. We’ll be happy to help you get out of debt.
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