How does a Consumer Proposal work exactly?
A Consumer Proposal is a legal agreement between you and your creditors to negotiate the repayment of the money you owe. Usually the debtor can ask for a reduction of the debt owed and a new prolonged payment plan.
Consumer Proposal payment terms can include a one time lump sum payment, or a series of monthly payments for up to 60 months. Proposals can even be in the form of a combination of a lump sum payment and monthly payments.
What debt can be included?
Most unsecured debts (credit cards, department store cards, lines of credit, etc.) can be a part of a proposal. However, you cannot pick and choose which debts are to be included in your Consumer Proposal – all your debts must be listed including Canada Revenue Agency debts such as income tax, credit card debts, student loans and loans from friends or family.
Certain debts however may still need to be repaid after your Consumer Proposal is finished as they are not qualified to be a part of the proposal. These debts include:
- Alimony and maintenance
- Child support
- Student loans, if you were a student within the last seven years
- Debts obtained by fraud or misrepresentation
- Court fines and penalties
What’s the usual settlement rate?
Consumer Proposal payments are calculated by taking into account the amount of debt you have, your income level and the assets you have. Debt reduction of 70% is common. The duration of the proposal and monthly payments are calculated on a case by case basis.
Is a proposal guaranteed to be approved?
The short answer is no. However, if rejected, your Consumer Proposal may be recalculated and re-submitted with more favorable terms for creditors.
How long does the approval process take?
After your paperwork is prepared, signed and filed, the approval process takes about 2 months.
Creditors have 45 days to accept or reject the proposal. If accepted it takes 2 more weeks to formalize everything at which point your proposal is considered to be creditor and court approved.
If your proposal is rejected you have an option to change your proposal offer and resubmit it to your creditors.
How does Consumer Proposal impact my credit score?
After a Consumer Proposal is filed, the credit bureau is notified and keeps a notation of this on your file. A Consumer Proposal will stay on your credit record for three years after it is completed. During this period you’ll have an R7 rating – which means a “settlement with creditors”.
Will my creditors stop bothering me after I file?
Yes. By filing a Consumer Proposal your creditors are no longer legally allowed to continue to pursue you for repayment. While your creditors will be stopped from contacting you, you are expected to continue to make certain payments such as a mortgage payment or a car loan or car lease payment if you intend to keep the asset.
Will I lose my house and my car?
No. Filing a Consumer Proposal does not mean that you will have to give up all of your assets. You are allowed to keep certain categories of assets up to an allowable value. The categories include clothing and personal effects, household furniture, a motor vehicle, work tools and RRSP’s and pensions.
If you do own a home or have a financed or leased a vehicle you will have to continue making your monthly payment if you intend to keep the asset. However, if there is any equity available in the asset, you may be able to pay the value of the equity to your trustee for distribution to your unsecured creditors.
How is my spouse affected if I file a Consumer Proposal or file for bankruptcy?
Generally speaking, your spouse will not be affected if you file a Consumer Proposal. A spouse will be affected however if you have joint debts or your spouse has co-signed or guaranteed a debt. Your filing does not impact your spouse’s credit rating, and any assets in your spouse’s name are also not affected.
If your spouse is jointly liable for any of your debts, or has co-signed or guaranteed any debts, then he or she may also have to consider filing a Consumer Proposal.
Does my spouse have to file a Consumer Proposal or file for bankruptcy if I am?
Your spouse is not required to also file simply because you are, but as mentioned above, if your spouse is also responsible for some of your debts, he or she may have to consider filing as well.
How to File?
The first step is contacting us for a Free, No-Obligation consultation. We’ll go over the process and provide our thoughts on what can be expected in your situation. At that point, if you decide to proceed we’ll schedule an appointment to meet in person and go over the proposal details based on your specific situation.
Click the link below to start!
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