Consumer Proposals are a powerful debt management solution offered exclusively by Licensed Insolvency Trustees that can allow you to consolidate your debt legally, without borrowing or resorting to bankruptcy. Because a Consumer Proposal is not a loan, it is accessible regardless of your credit history or score.
One of the major advantages to choosing a Consumer Proposal is that your consolidated debts can be reduced down to what you can afford to repay. Consumer Proposals are often successful in offering as little as 25-50% of your total debt, with no additional interest charges or administration costs, making monthly payments very affordable.
The number of consumers who consolidate their debts by making a Consumer Proposal to their creditors has been steadily increasing across Canada, but this powerful debt option is still relatively unknown to many people. Read on to learn more about what happens when you file a Consumer Proposal in BC.
Basic Steps to Starting a Consumer Proposal
The first step to making a Consumer Proposal is to connect with a Licensed Insolvency Trustee. They can help you assess whether a Consumer Proposal would be the best option to deal with your debts and assist you in working out what payment terms to offer your creditors. Some considerations to determine the amount of an appropriate debt settlement offer include:
- Your income, expenses and overall household situation.
- How much debt you have and to whom the debt is owed.
Virtually all types of debt are eligible for consolidation under a Consumer Proposal, including credit cards, payday loans, overdrafts, lines of credit, tax debt, student loans (both government and private), ICBC debt, mortgage shortfalls and more.
Once you have worked with your Licensed Insolvency Trustee to structure the proposal terms (i.e. monthly payment amount and number of months) you will sign official Consumer Proposal documents and receive immediate protection from your creditors. These documents can be prepared with a very quick turnaround time should you have a pressing situation such as a garnishment or legal action commencing.
Your Licensed Insolvency Trustee will then register your signed Consumer Proposal with the Office of the Superintendent of Bankruptcy (the government body that regulates and oversees Insolvency Trustees) and notify your creditors of your offer. All of this is typically done electronically to expedite the process.
Your Consumer Proposal being officially registered will trigger a “stay of proceedings” essentially crystalizing your debts by freezing all future interest and finance charges. Your Licensed Insolvency Trustee will step in the middle between you and your creditors and will ensure creditors cannot pursue you for payments. This protection is very broad and covers several key areas, including:
- Stopping payment requirements
- Freezing your interest charges
- Halting collection actions and wage or bank account garnishments
The entire Consumer Proposal process can be completed remotely with your consultation and official filing done online from the comfort, convenience and privacy of your home.
Ready to get started with a Consumer Proposal? Book your confidential free debt consultation today.
After Your Consumer Proposal is Filed
Once officially filed your creditors have 45 days to consider your Consumer Proposal and vote on whether they accept the terms you have offered. In order to vote your creditors will need to file a “proof of claim” with your Trustee, proving that the debt exists and confirming the amount owed. Your creditors may:
- File their claim and vote to accept your proposal
- File their claim and vote to accept your proposal, provided you agree to some modified terms (such as a higher monthly payment, or longer term)
- File their claim and vote to reject your proposal
- Abstain from voting and/or abstain from even filing a proof of claim
If more than 50% of your creditors (by dollar value) vote to accept your Consumer Proposal then it will be legally binding on all your creditors, even those who did not vote, or voted to reject your proposal.
- Where one or more of your creditors who is owed at least 25% of your overall proven debts requests it, a “meeting of creditors” may be held within the initial 45-day period.
- This meeting is rare, and is normally held by telephone, with the objective of providing your creditors an opportunity to ask questions and try to reach an agreement with you on modified proposal terms that will be acceptable to all parties.
Our experience is that approximately 95% of Consumer Proposals are accepted as filed, without modifications. On an overall basis, nearly 99% of Consumer Proposals filed receive creditor approval based on the fact that they provide for a better recovery (i.e. more money repaid to creditors) than would be the case if the individual chose to file for bankruptcy.
Making a Consumer Proposal does not forfeit the option to seek bankruptcy. In the unlikely event your Consumer Proposal is unsuccessful, you still have the option to declare bankruptcy to deal with your debt. Conversely, if your situation has changed and you can make some repayment on your debts, a Consumer Proposal can be filed by a person in bankruptcy, annulling the bankruptcy.
Once Your Consumer Proposal is Accepted by Creditors
15 days after the 45-day voting period has passed and your Consumer Proposal has been accepted, your Consumer Proposal will also be deemed to be legally court-approved. You will then start fulfilling the terms of your Consumer Proposal. Although terms are flexible and can be tailored to your unique situation, this will generally involve:
- Making monthly payments to your Licensed Insolvency Trustee, to be accumulated and periodically paid to your creditors.
- Some people may offer a lump sum payment instead of a monthly payment, or funds from the sale of an asset – but this is less common.
- Attending two private financial counselling sessions focused on money management and credit resources. There is no additional cost for these sessions or for any Consumer Proposal services – all costs are paid out of the monthly payment you are offering to creditors.
What Happens to Creditors Not Covered Under the Consumer Proposal?
If most of your creditors – by dollar value – have voted to accept your Consumer Proposal then and all “against votes” from other creditor(s) will simply be overruled. The dissenting creditor(s) will still be bound by the terms of the Consumer Proposal accepted by the majority creditors and will be legally prohibited from contacting you for payment outside the proposal.
There are a few types of debts that will survive a Consumer Proposal, although your proposal will still offer payments to them, with the unpaid portion being collectable following your proposal’s completion. These include:
- Child or spousal support payments
- Court-imposed fines
- Student loans where you have been out of school for less than 7 years
What Happens to my Mortgage or Car Loan in a Consumer Proposal?
When you have a mortgage or vehicle financing those debts are called “secured”, meaning the creditor holds an asset as “security” or “collateral” for the debt. These are treated a bit differently than other debts in a Consumer Proposal that are called “unsecured”, such as a credit card debts, income taxes or other common debts. With secured debts, your options when filing a Consumer Proposal include:
- You can decide to keep the asset tied to the debt, continuing with the payment arrangements in place outside of your Consumer Proposal (i.e. keep making payments on a car you wish to keep).
- If your secured debts are in good standing and paid up to date there is normally no impact to these accounts, and a Consumer Proposal generally does not disrupt a mortgage renewal that occurs while your proposal is in progress.
- You might alternatively decide you do not want to keep the asset, in which case the start of a Consumer Proposal can be a good time to surrender the asset and end any ongoing commitment. If there is a shortfall for this debt (i.e. you have a balance owing after the asset has been surrendered) this amount can be included in your Consumer Proposal.
Can I Change my Consumer Proposal Once Its Been Filed?
If your situation changes during your Consumer Proposal and you can no longer afford your Consumer Proposal payments, it may be possible to modify your repayment terms by filing an Amended Consumer Proposal.
- Your creditors would be notified of your intention to change your proposal, and they would be asked to vote to accept the revised Consumer Proposal. Like the original proposal, if most creditors (by dollar value) vote in favour, the new terms would then take effect.
What Happens if I Stop Paying my Consumer Proposal?
If your Consumer Proposal calls for monthly payments and you miss three payments, or if your payment schedule is less frequent and your last payment is over three months late then your Consumer Proposal will be deemed annulled.
- Your Consumer Proposal’s annulment means that your creditors will be able to resume collecting the money you owe them, less whatever amount they may have already received through the proposal.
- A Consumer Proposal can be “revived” under certain conditions, or you could instead choose to declare bankruptcy if you are unable to repay the original debts once your creditors’ rights to collect upon the debt resume.
Should you become concerned about your ability to maintain your Consumer Proposal terms at any point, speak with your Licensed Insolvency Trustee as soon as possible. We want to ensure you can move forward successfully with a debt-free plan that is affordable for your unique situation.
How Long Does a Consumer Proposal Take to Finish?
Consumer Proposals are a great non-borrowing consolidation tool for a range of situations, and because every Consumer Proposal is tailored uniquely to each person’s situation they can last for varying lengths of time:
- If you are making a lump sum payment, your Consumer Proposal could take as little as a few months from official start to finish, including the time needed for your creditors to approve your proposal and financial counselling sessions to be completed.
- The maximum length of time for a Consumer Proposal term is 60 months.
- You can make extra payments on your Consumer Proposal and pay it off early at any time with no penalty.
After your final Consumer Proposal payment is made you will receive a “Certificate of Full Performance” which signifies that your proposal is complete and that you have achieved full and final settlement of your debts. You are now debt-free!
Even though your debt payments and interest charges were previously frozen, receiving your Certificate of Full Performance is what triggers the unpaid balance of the debts included in your Consumer Proposal to be legally written-off/forgiven by your creditors forever.
Consumer Proposal Impact on Credit History
Your Consumer Proposal will be noted on your credit history for three years following completion or six years from the date your proposal officially started, whichever is soonest. You can apply for new credit and build up your credit history and score at any time, you do not need to wait for the three-year window to pass.
For many people this relatively short-term impact allows them to become debt-free and achieve a strong credit rating in far less time and at a much lower cost than if they had tried to pay the original debts plus ongoing interest on their own without the benefits of their Consumer Proposal.
Find out if a Consumer Proposal could be right for you – connect with a BC Licensed Insolvency Trustee today, book your confidential free debt consultation here.