Consumer Proposal
The repayment term will usually span over five years, with the option to pay down your debt faster without any penalties. The annual interest rate on all of your debt will be reduced to zero percent from the date that you file.
How it works
You would start by booking an appointment to speak with a Licensed Insolvency Trustee (LIT). During the appointment, the LIT will consolidate all of your unsecured debts and calculate a monthly payment amount that he/she feels you can afford based on your income and your assets. The LIT will then send proposals to each of your creditors, offering the newly negotiated amounts. The creditors have 45 days to accept, reject or counteroffer these amounts.
What happens if all of my creditors don’t accept my proposals?
As long as creditors representing at least 51% of your debt amount choose to accept the proposals, then all of the creditors must enter into the consumer proposal, even the ones who did not accept. In the unlikely event that enough creditors do not accept the proposals, the Trustee will present you with other debt relief options, such as bankruptcy.
Will I lose my assets if I file a consumer proposal?
No. You will not lose your home or vehicle if you file a consumer proposal, provided that the monthly payments on the mortgage or vehicle are up-to-date.
If you do own a home and want to file a consumer proposal, you will likely have to prove that there is NOT enough equity in your house to pay off all of your unsecured debts. Equity for this purpose is calculated as the current value of your home minus the amount remaining on your mortgage. Therefore, to qualify for a consumer proposal the equity in your home should be less than the amount owed on all of your unsecured debts.
Will it stop legal action from my creditors?
Upon filing a consumer proposal, a stay of proceedings is immediately put into effect. This means that any collection calls, wage garnishments, seizures, liens or legal action against you must be stopped by creditors at once.
Beware of paying unnecessary fees
There are some companies that will offer to complete the paperwork for you to file a consumer proposal, in exchange for a fee of hundreds of dollars. The company or agency will then send your documents to a Licensed Insolvency Trustee who will file your consumer proposal, as they cannot do it themselves. Unfortunately, the Licensed Insolvency Trustee will still charge you their usual filing fee, which covers filling out the same paperwork. Having an outside agency complete your documents will NOT increase your chances of having your consumer proposal accepted by the creditors. Avoid paying unnecessary fees to these agencies just for a referral. You can find a Licensed Insolvency Trustee on your own through a simple internet search or DebtAnswers Canada canput you in touch with one, free of charge.
Impact on credit rating
During the repayment term, your creditors will report to the credit bureaus that you have filed a consumer proposal. This can be reported as an R7 or an R9. Once you have completed the Consumer Proposal and have been discharged, an R7 credit rating will be applied to your credit report for three years. After the three year period, you will be eligible to have these debts removed from your credit reports.
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A consumer proposal can be a great debt relief option if you are looking to keep your assets, and have enough income to make some of your monthly debt payments, but not all of them. If you need help finding the right debt solution, try our free DebtAnswers Solution Finder to get answers based on your unique financial situation.