Consumer Proposal FAQs
A consumer proposal allows you to negotiate a payment plan with your creditors and avoid filing bankruptcy. To help you decide if a consumer proposal is the right option for you, we’ve provided some answers to the most frequently asked questions we receive about consumer proposals in Canada.
If you are considering a consumer proposal as an alternative to bankruptcy, our team of Licensed Insolvency Trustees will explain the consumer proposal process and answer any questions you might have.
A consumer proposal does not usually involve losing any assets such as your home. If you continue to make payments on your mortgage and vehicle loans as needed, you should be able to keep these assets. As long as your creditors agree to your proposal, you are allowed to keep the assets that you own.
Money invested in RRSPs is typically protected under a consumer proposal (with some exceptions) and money invested in RESPs and TFSAs may also be protected under a consumer proposal.
Your trustee will provide you with specific information on what will happen to your assets before you make the decision to file a consumer proposal. However, a consumer proposal does not generally involve surrendering assets.
Yes you can rebuild your credit score after you have filed a proposal. By following the steps your proposal administrator will give you it is possible to rebuild your credit fairly quickly.
Even with a report of your proposal on your credit report, you can still receive new credit at reasonable interest rates.
If you have filed a proposal the notice on your credit report will include your date of filing.
Once you have received your certificate of completion for your proposal, the OSB will send a note of your proposal completion to the credit bureaus.
It can take up to two months for the credit reports to update.
You can miss up to two payments without consequences. These payments can be added onto the end of your proposal. However, if you fall three payments in arrears, your proposal will be automatically annulled.
This means your proposal is cancelled, and your debts will be reinstated in full and your creditors can seek collection from you. All payments you made during the proposal will be lost.
Yes, the CRA is an unsecured creditor and you can include your tax debt in the proposal.
What Do I Have to do During the Proposal?
There are certain duties that a person in a consumer proposal must complete in order to successfully complete their proposal.
During the proposal you must:
- Make your payments on time (you can defer two payments without consequence) and;
- Attend the two required financial counselling sessions
Most consumer proposals are accepted by creditors, as a primary rule when crafting a proposal is that your creditors must receive more than if you were to file for bankruptcy.
Your Trustee / Proposal Administrator will work hard to craft a proposal to your creditors that has the highest chance of being accepted.
Most administrators will understand what different creditors want to receive in order to accept a proposal. However, your proposal still might be rejected by your creditors. Although this is very rare, it could happen. If your proposal is not accepted, then you can negotiate with your creditors until an agreement can be reached.
Your proposal will be accepted if a majority of your creditors (each dollar of proven claims counts as a vote) vote yes on the proposal, or do not vote at all (which is considered a yes vote).
The creditors have 45 days from your proposal being electronically filed to vote or request a creditor’s meeting. A meeting is required if 25% of your unsecured creditors request a meeting.
If your proposal is accepted all creditors, including those who voted against your proposal, will be bound by the terms of the proposal.
A consumer proposal can last for any period of time not exceeding 60 months / 5 years. The reason a proposal cannot last longer than 5 years is that evidence showed most proposals longer than 5 years will fail, mainly because people don’t see a “light at the end of the tunnel”.
You can make a one time lump sum consumer proposal that can be over in a matter of weeks.
The amount of debt that can be written off in a consumer proposal varies widely as it depends on your debts and your creditors. When making a consumer proposal you must offer your creditors more than they would receive if you were to go bankrupt.
Generally, you will repay 30 to 40% of your debt during a consumer proposal over a period of time lasting up to 60 months (5 years).
Your proposal administrator (only a Licensed Insolvency Trustee can act as a proposal administrator) will examine your assets, income and budget to determine what you would pay in a bankruptcy and what you can afford to pay to your creditors under a proposal.
The trustee will use this as a guide to determine your consumer proposal amount.
The cost to file the proposal is covered by the payments under the consumer proposal; there is no additional payments to be made.
You can defer up to two payments but if you fall three payments in arrears your proposal will be ‘deemed to be annulled’, your debts are reinstated and you lose your creditor protection.
How long does a consumer proposal stay on my credit report?
The Office of the Superintendent of Bankruptcy reports all consumer proposals and bankruptcy filings monthly to the different credit bureaus. If you file a consumer proposal a notice will appear, including the date you filed, that indicates that you entered a repayment arrangement with your creditors. This notice remains on your report for 3 years after your proposal is completed.
Yes. A consumer proposal is a legal proceeding under the Bankruptcy and Insolvency Act that provides a stay of proceedings that immediately stops all creditor actions including most wage garnishments and calls from creditors and collection agencies. Once you sign your proposal documents, they will be electronically filed with the government and you immediately gain protection from your creditors.
Yes. Unsecured tax debts are included in a proposal and CRA is bound by the terms of an accepted proposal. See our tax debt forgiveness article.
Yes. While your total payments are fixed once your creditors accept the proposal, you can pay off your proposal early and begin the recovery process sooner.
- You do not surrender assets in a consumer proposal, including tax refunds
- Monthly payments are usually lower in a bankruptcy
- A proposal requires the pre-approval of your creditors through a voting process. Bankruptcy is automatic although your creditors can oppose your discharge
- Payments in a consumer proposal are negotiated up front. Bankruptcy payments are defined by legislation and can increase if your income increases
- You can pay off a consumer proposal early. Bankruptcy has a pre-defined length determined by legislation
- A consumer proposal has fewer required duties than bankruptcy. For example; there is no requirement to report your income and expenses monthly in a consumer proposal
Payments can be spread over a maximum of 60 months. If you can afford more each month, you can shorten your proposal term or offer a lump sum payment.
No. You cannot pick and choose which debts to include. A consumer proposal eliminates unsecured debts including credit cards, lines of credit, payday loans and tax debts. You cannot modify the terms of secured debt in a consumer proposal.
There are some debts that cannot be settled by a consumer proposal including student loans less than 7 years old, support and alimony obligations, court fines and penalties.
- A consumer proposal is approved if a majority of creditors (based on the dollar value of proven claims) vote yes after which it is approved by the Court
- A meeting is required if at least 25% of your unsecured creditors ask for one (based on the dollar value of proven claims)
- Creditors have 45 days to vote or request a meeting
Failing to vote is considered a yes vote.
It is possible to negotiate to try to obtain agreement.
- What you own and what you earn to determine how much would be available to your creditors in a bankruptcy
- Your budget to determine that you can afford the payments
There are no extra or up-front fees. Your LIT or consumer proposal administrator is paid out of the amount you agree to pay your creditors. The cost for filing a consumer proposal is covered by your agreed upon proposal payments and are not a separate charge.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.