If you are struggling with your finances and have racked up debt, you may think that bankruptcy is the only option you have. In fact, this could be the very reason that you have delayed seeking professional support. After all, no one wants to declare bankruptcy and the thought of it can be anxiety-inducing!
There are other options — such as a consumer proposal. It turns out that not many Canadians know what a consumer proposal is. And, if they have heard of it, they are not sure how it differs from bankruptcy. In this article, we are going to look at consumer proposals and explain what they are, how they can help individuals who are in debt and how they differ from bankruptcy.
Consumer Proposal v Bankruptcy
The Bankruptcy and Insolvency Act governs bankruptcy and consumer proposals. The act is governed by directives issued to Licensed Insolvency trustees by the Office of the Superintendent of Bankruptcy. Although the rules are Federal, Provincial laws also play a role in shaping bankruptcy and insolvency regulations in Canada. These laws are in place with the intention of giving protection from the courts to people who are insolvent and unable to repay their debts in full.
Years ago, bankruptcy evolved to give people who were honest but had been hit by bad luck or planning a new start. It was, and is, an important process for people to follow when they were overwhelmed with debt and clearly had no ability to pay for it, now or in the future.
If someone files for bankruptcy it means that collection activity on the debts included in the bankruptcy ends. The bankrupt person follows a set of requirements overseen by the trustee and in return, the eligible debts are forgiven.
On the other hand, a consumer proposal is different from bankruptcy. When you meet with a trustee and discuss options, in a consumer proposal creditors are offered a certain amount of money, based on your situation, in order to settle your debts. At that point, your creditors will take a vote on the offer. If the creditors to whom you owe the majority of your debt accept your offer, then you repay the agreed-upon amount in your consumer proposal over an agreed-upon amount of time. The usual time period is within five years.
What Exactly Is A Consumer Proposal?
A Licensed Insolvency Trustee (LIT) administers a consumer proposal, which is a formal, legally binding process. When you begin working with a trustee, they will review your circumstances and help you decide which option is best for you. If you decide to opt for a consumer proposal, the LIT will continue working with you to assist with the creation of your consumer proposal. As noted above, this is an offer to pay your creditors a percentage of what you owe them to settle the debt. However, a consumer proposal cannot be longer than five years. The payments you make to your creditors are made to your trustee who then distributes them..
Talk To A Licensed Insolvency Trustee First
When you face financial problems it’s likely that you have been dealing with some stress for a while. It is common for people experiencing financial duress to put off dealing with the situation due to feelings of embarrassment, shame or an inability to move forward. Others think that a miracle will happen and that their money problems will vanish. While these feelings are understandable, It’s important to deal with your money problems as soon as possible. The longer you postpone it, the more stress you will have to endure because creditors will increase their demands for money by using collection agencies. The problem won’t simply go away.
The first step is to contact a Licensed Insolvency Trustee. Make sure you avoid one of the many ‘Debt Management’ companies that take advantage of unsuspecting customers and are not licensed by the government. A lot of debt relief companies say that they offer informal proposals as a way to get out of debt. However, only a Licensed Insolvency Trustee is allowed to file the paperwork for a consumer proposal. These other profit-making debt relief companies can charge significant amounts of money and then refer you to a LIT who has their own fees. Moreover, a LIT can help you determine if a consumer proposal is right for you without any additional fees.
What Will Happen When I File A Consumer Proposal?
When you file a consumer proposal you have some important responsibilities which you must follow through on. You are responsible for giving your trustee a full and complete list of your assets and debts, and for assisting the LIT in administering the proposal. You must attend the first meeting of your creditors but only if such a meeting is requested. You are also required to complete two financial counselling sessions. If any of your personal information changes, such as your address, you’re required to let your LIT know in writing.
The first step is for your LIT to file your consumer proposal with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you no longer have to pay your unsecured creditors directly. Further, if your wages are being garnished (money is being taken from your salary to pay off creditors), this is required to stop. Your consumer proposal will contain a detailed report about your situation and events which have caused your financial hardships. Your LIT will submit the proposal to creditors to whom you owe money. Upon receiving the report, creditors will have 45 days to vote to reject or accept your consumer proposal or if they want a meeting. Your creditors have the option of deciding if they reject or accept your proposal before a meeting of the creditors or at the meeting if such a meeting is set or request a change in the terms.
What If My Consumer Proposal Is Accepted?
When a consumer proposal is accepted by creditors, you’ll generally be required to pay either the agreed upon lump sum to your LIT or the agreed upon regular payments. You have to adhere to the terms of the proposal outlined in the proposal document. It’s important to remain aware that if you are making regular payments and miss payments, your consumer proposal can be annulled. In this case, the agreement would no longer apply and your creditors would be able to take action to collect the money you owe them. This is why it is important to meet with your trustee as soon as you start having problems with payment.
If My Consumer Proposal Is Rejected?
If your proposal is rejected, you can either make changes to it and then submit it again, or discuss other options for resolving our financial hardships with your trustee such as declaring bankruptcy.
If you are struggling financially and don’t know where to turn, we encourage you to contact Kevin Thatcher & Associates today at 1-888-329-5198. We are happy to give you a free consultation and discuss your options so that you can prepare to begin life with a clean financial slate. Call today!