Consumer Proposals

A great way to avoid Bankruptcy in Ontario

You have a job, and you want to pay your debts, but you don’t quite have enough money to pay everyone in full.  What can you do?

The answer might be a consumer proposal.

What is a Consumer Proposal?

A consumer proposal is a deal you make with your creditors (the people you owe money to); in many cases they will accept a deal for less than the full amount owing.

Proposals work best if you have debts in excess of $15,000 (to a maximum of $250,000), and you have the ability to repay a portion of your debt.  The advantages of a consumer proposal are:

• You can take up to five years to make the payments;
• Only a majority of your creditors (50% +1) are required to vote yes; if they do, all creditors must accept the proposal;
• There are no further interest charges;
• You can negotiate to repay only a portion of the debt you owe;
• Wage garnishments (except for support and alimony) are immediately stopped.
• Your creditors are “stayed” (restricted) from taking any legal action against you.

Consumer proposals were created to provide people with an alternative to bankruptcy. If you are in financial trouble and you have the ability to repay a portion of your debt, perhaps a consumer proposal to creditors is the right solution for you.

Once you file a proposal, none of your unsecured creditors can garnish your wages or take you to court until the proposal has been dealt with. In fact, if your wages are being garnished and you file a consumer proposal, the garnishment will stop.

In addition, when you file a proposal to creditors, all of your unsecured debts are frozen and no more interest accumulates against them.

How does a consumer proposal work?

A consumer proposal can only be filed by a consumer proposal administrator licensed by the federal government.  Grant Thornton in Thunder Bay is fully licensed, so please contact us today and we will help you summarize your financial situation and determine how much of a monthly payment you can afford to make. We will then compare that payment to the total amount of your unsecured debt to determine how many months you will be required to pay. If the numbers appear reasonable for both you and your creditors, we will prepare the documents necessary to file your consumer proposal.

Is that all it takes to file a consumer proposal?

That’s the end of the first stage. The second stage is up to the people you owe money to. Under the Bankruptcy and Insolvency Act (“BIA”) they have 45 days to vote for or against your proposal. If a simple majority (50 % +1) vote for your proposal then it is deemed to be accepted by ALL of your creditors. Fifteen days after that, if there are no objections, your proposal will be approved by the Court. From that date forward, both you and your creditors are locked into the terms of the proposal.

What if my creditors vote “no” to my personal proposal?

If 25 % or more of your creditors vote against accepting your proposal, we  will call a meeting of creditors. At that meeting (which you must attend) the trustee will help you negotiate with your creditors in an attempt to find an agreement that both you and the creditors find acceptable.

Here’s an example:

“You have debts totaling $40,000. After you pay all of your living expenses (rent, utilities, groceries, etc.) you have $600 left to pay bills. You want to leave yourself a bit of a “buffer” for unexpected expenses (like car repairs) so you think you can afford to make a payment of $400/month towards a proposal.”

Generally, the amounty that creditors consider reasonable is an offer to repay at least 30% of the amount that you owe. In the example above, that would be $12,000. With a payment of $400 per month it would take you 30 months to pay that amount, so that’s probably the proposal to creditors that you would offer (30monthly payments of $400 per month).

If you could only pay $300 a month, then it would take you 40 months to pay $12,000.

Keep in mind that this is only an example. Your creditors might accept less than 30% or they may ask for more. Each consumer proposal is different and has to be considered on its own merits.

Which debts can I include in my proposal to creditors?

Consumer proposals to creditors were created to deal with unsecured debt. An unsecured debt is money owed without collateral. Some examples of unsecured debt include:

• Credit cards
• Lines of credit
• Personal loans
• Income taxes

The other type of credit that people usually have is called secured debt. Secured debt is money that was borrowed with a condition that if you fail to make your payments one (or more) of your possessions may be seized and sold by the secured creditor. Some example of secured debt include:

• Mortgage
• Car loan/lease
• Financing contract

In most cases, secured creditors are excluded from your proposal, unless you decide to surrender the asset.  We will explain this in detail when we meet for our first consultation.

Can’t I just leave a creditor out of the personal proposal?

No. If you file a proposal to creditors, you are required to include all of your unsecured creditors. That goes for family and friends too. All of your unsecured creditors must be treated the same – it’s one of the basic conditions of filing a consumer proposal.

What happens if I miss a payment on my consumer proposal?

Over the life of a consumer proposal you may miss up to two payments and we will simply add two more payments to the end of the proposal.

However, if you miss three payments the proposal to creditors collapses and is annulled by the Court. If your proposal is annulled, your unsecured creditors may immediately apply to the court to garnish your wages and interest charges are applied to your debts back to the day that you filed your consumer or personal proposal.

Once you file a proposal to creditors, if you start to run into payment problems, contact us immediately.

How does a consumer proposal affect my credit rating?

As soon as you file a proposal to creditors your credit rating will be revised to an R7 (paid through a consumer proposal or credit counseling debt management program) and it will remain at this rating until the proposal is completed. In addition, after you complete the proposal, a note will appear in your credit record for up to three years from the date that you completed your proposal.

Consumer proposals sound too easy…

No. A consumer proposal will only work if you have the ability to make your payments. Remember, your alternative is to file bankruptcy in Thunder Bay. Your personal proposal must offer your unsecured creditors more money than they would receive in a bankruptcy and they have to believe that you are capable of making the payments that you are proposing.

I think I might want to file a consumer proposal, what do I do now?

If you are experiencing financial difficulty, we recommend you make an appointment to see a member of our team to discuss whether a consumer proposal is an Thunder Bay bankruptcy alternative in your situation.

We will assess your situation and help you determine the strategy that makes the most sense for you. Our initial consultation is always free of charge, and may help you to resolve your problems before they get out of hand.

If you think you’re in trouble – contact us today.