How Does A Consumer Proposal Work?
Consumer proposals are official, legally enforceable processes that are overseen by LITs (Licensed Insolvency Trustees). During these processes, LITs work with borrowers to devise ‘proposals’ — which are official offers to pay lenders a portion of what they are owed, and/or prolong the time borrowers must repay the debts. Consumer proposals can not last for any longer than 60 months (5 years).
LITs receive the payments, and then use that cash to repay each lender.
Under what circumstances are Consumer Proposals used?
We will assess your financial circumstances and outline the advantages and disadvantages of the different options that may help to manage your outstanding debts.
Once you choose to enter into a Consumer Proposal, we will consult with you to devise an offer that benefits you and your lenders.
After a Consumer Proposal is filed, what will happen?
- We will register the proposal at the OSB (Office of the Superintendent in Bankruptcy). Then, you will not make any more direct payments to your unsecured lenders. Furthermore, if your lenders have filed any salary arrestment’s, or have taken civil action against you, this will be halted.
- We will propose the Consumer Proposal to your lenders. It will feature information about your personal circumstances, and the reasons for your financial problems along with a formal offer for repayment which we be legally binding.
- The lenders then have forty-five days to decline or accept your proposal. Also, they might do this before or during the lender’s meeting, should one be arranged. In most cases it is all done through written correspondence.
Why would a lender’s meeting be arranged?
A lender’s meeting is arranged if at least one lender, who owns twenty-five percent or more of the proven claims’ value requests this.
Lenders must ask for a meeting no longer than forty-five days after the proposal is filed. Also, the OSB can tell us (the trustee) to arrange a lender’s meeting at any point during that same time period.
The lender’s meeting must happen within three weeks of being agreed. During this meeting, the lenders vote to decline or accept the proposal.
Should no lender’s meeting be requested within forty-five days of the proposal filing, the Consumer Proposal is classed as having been approved by the lenders — irrespective of any objections raised.
The Vote to Approve or Decline a Consumer Proposal
During the lender’s meeting, a lender’s approval or rejection of a Consumer Proposal qualifies as a vote, if it is made at or prior to the meeting. Objections do not qualify as votes on a proposal, if no meeting is held.
The vote numbers correspond to the proven claims’ full dollar value. The outcome of the vote is determined by a dollar value majority (that is, fifty percent plus one). For instance, if the total of the proven claims is $150k, and if the lenders who vote to approve the proposal claim $75,001 or more, the Consumer Proposal is classed as approved.
Once the Consumer Proposal receives approval
Once a Consumer Proposal is approved, the OSB will ask the trustee, within fifteen days, to submit a court application to review the proposal. If this request isn’t made, the proposal is classed as having received court approval.
After your Consumer Proposal is approved, you are:
- Accountable for making regular payments to, or paying a one off sum to, the trustee;
- Obliged to observe all the proposal’s other terms;
- Able to keep your assets (if you pay your secured lenders on time); and
- Obliged to attend a couple of financial advice sessions
If your Consumer Proposal gets declined
Should your proposal be rejected, we will:
- Amend it and submit it again;
- Look at other ways to solve your financial issues; or
Do Consumer Proposals influence credit scores?
Typically, people who declare themselves bankrupt or submit Consumer Proposals are given an extremely low credit rating.
Normally, details that affect your credit rating are taken off your records, once a certain amount of time has elapsed, based on the kind of data and your place of residence. Likewise, based on your zip code, the consumer proposal will remain on your credit history for as long as the proposal is valid, and several years longer.
How easily you will be able to access credit after filing your proposal depends on persuading lenders that you are solvent, and able to pay back the money. Nothing can be guaranteed — lenders are not obliged to offer you a loan.
After you have satisfied your proposal’s conditions, you will get a ‘full performance certificate’. To make sure that your credit history is up to date, send all the main credit recording agencies copies of this paperwork. Always retain your proposal paperwork, so that future creditors can reference it.
When you satisfy your Consumer Proposal’s conditions
Once you have fully met the terms of your Consumer Proposal, you will be freed from the debts specified within it.
Nonetheless, if you make payments each month and default on three, or if you have a less regular payment timetable but your previous payment is three months or more overdue, your proposal will be classed as voided. As a result, your lenders can start taking steps to collect the funds that are due to them.
The only things that can prevent this are a court order to the contrary, or if the proposal has been changed and filed again. Consumer Proposals that are classed as void might be reinstated in some circumstances.
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.