If you’re exploring various debt relief options for your business, chances are that you have considered filing a consumer proposal. This proposal is a formal agreement filed between you and your creditors by a licensed insolvency trustee. It is a great debt relief option, as it can, in certain cases, result in 60% of debt savings, while simultaneously retaining your personal assets, such as cars and homes. Consumer proposals allow you to get out of debt quickly and easily, as they include an offer to your creditors to settle for an amount smaller than what you owe them.
However, not everyone can file a consumer proposal in Canada. It is a legal process that must be filed with an accredited licensed insolvency trustee. In Ontario, the trustee’s role is to help determine if a consumer proposal is right for your needs, and then begin the process of meeting the technical requirements and provincial guidelines.
The Bankruptcy and Insolvency Act outlines the legal requirements to file a consumer proposal in Canada, and includes the following:
- You must be an individual who resides in, owns property, or business in Canada.
- You must be insolvent; that is, you are unable to pay your debts, and your assets are worth less than the debt you owe.
- You must meet the debt limit to be eligible to file a consumer proposal. In Ontario (and most of Canada), you must owe more than $1000 and less than $250,000 (with certain stipulations) to be eligible for filing a consumer proposal. However, there are other proposal options if your debt is above this amount.
Types of Debts
While consumer proposals allow you to settle your debts and consolidate your assets, the Canadian Government mandates the debt eligible for consumer proposals. Credit card debts, unsecured loans or lines of credit, payday loans, accounts in collection, bill payments, and amounts owed to the CRA are all eligible to be cleared for discharge through a consumer proposal.
On the other hand, secured credit (such as a car loan or mortgage) is not eligible for consumer proposals. Any debt from secured creditors in general are usually not eligible, although if the underlying asset is returned, then the debt may be settled. Handing back the asset itself (such as a car or house) removed the security from the equation and any remaining unsecured balanced owed can be dealt with in a consumer proposal.
The Best Time to File
The good news is that there is no “right” time to file a consumer proposal! Every debt relief situation varies greatly, depending on your province, assets, burdens, etc. However, our team of trustees has found that if the credit card interests are racking up and you’re using one card to pay off the other, then it’s probably time to consider getting the help you need. We understand that it is difficult and stressful to speak about your financial troubles, but our team is here to help.
Just remember that there are numerous debt relief options to choose from, giving you the freedom to pick one that works best for you. Trustees can outline your options and, in the case of a consumer proposal, they are there to negotiate with creditors and complete any needed administration. They will help you determine the best time to file a consumer proposal according to your financial situation.
Making an Official Claim
Consumer proposals in Canada can be submitted to creditors by a licensed insolvency trustee only. A debt consolidation firm credit counselling agency cannot file a consumer proposal for you, and neither can you file it yourself. Trustees are licensed with the federal government and have knowledge in both provincial and federal laws.
Trustees will go through your assets, make technical assessments, and create a debt settlement strategy that is personalised for you. Income and expense reports aid in a thorough understanding of financial abilities, which then allows for the consumer proposal to be created and filed. Once accepted by your creditors, the consumer proposal is legally binding for all parties involved.
Accepting/Rejecting a Consumer Proposal
After your trustee performs a financial evaluation of your assets and situation, the consumer proposal is registered with the official receiver (government). The consumer proposal can then be sent out to all your creditors, after which they have 45 days to decide whether to accept or reject the proposal. Most consumer proposals are accepted as is, although a few cases may require negotiations with your creditors in stipulations or a slightly larger amount of compensation. A general rule when it comes to the amount the consumer proposal offers is that it must be larger than what a creditor would receive if you filed for bankruptcy instead.
Once the majority of unsecured creditors accept the consumer proposal, then the document becomes legally binding for all parties involved, that is, the creditors and the debtor. In Ontario, most reasonable consumer proposals are accepted simply because the creditors know the amount they receive will still be higher than they will receive if you file for bankruptcy. This amount will in most cases be less than what is owed and it will stop the high interest charges.
What happens next?
When you file your consumer proposal, you and your creditors enter a legally binding process. The terms of the proposal stipulate the payment you’ll need to make to various parties. Once you have made all your payments and fulfilled all your associated duties, you will receive a Certificate of Full Performance by your trustee.
In Ontario, a copy of this certificate is forwarded to TransUnion and EquiFax (two major credit bureaus) by the government. Three years after you complete your consumer proposal, the information will drop off your credit report, thus leaving no trace of debt consolidation in the first place.
There you have it: some important facts to keep in mind while filing for a consumer proposal in Ontario. While consumer proposals will be the right step for certain individuals, understanding the process of filing can help determine if it is the right solution for relieving your debts.
To learn more about filing for consumer proposals, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.