Area of Law: Credit, Debt and Bankruptcy
Answer Number: 0274
What is a consumer proposal?Region: Ontario Answer Number: 0274
Informal arrangement with creditors
You could try to make an informal arrangement with your creditors to pay a lesser amount or make your payments over a longer period. Often this is done with the help of credit counselling agencies. You may want to discover how your credit rating will be affected before agreeing to such arrangements. Sometimes creditors agree to reduce your debt or extend the repayment term, but still report you to the credit bureau.
Another option is a consumer proposal under the Bankruptcy and Insolvency Act, available to individuals whose total debts do not exceed $250,000, not including debts secured by their principal residence. This is a legal process that allows you to make an offer to your creditors to change your payment schedule, or compromise your debts. For example, you may offer to pay less each month over a longer period. Or, you may offer to pay only a percentage of what you really owe. Your proposal must offer creditors at least what they would get if you filed for bankruptcy, and your plan must not extend beyond a five year period. If your creditors accept your proposal, you will be able to manage your financial situation without filing for bankruptcy.
How to make a consumer proposal
To make a consumer proposal, you must find and meet with a licensed trustee in bankruptcy. They will help you prepare your proposal, and they will present your proposal to your creditors. You are also required by law to have two financial counselling sessions with the trustee to discuss financial management and budgeting.
There are no “up front” or “hidden” fees in a consumer proposal. Your trustee receives a fee of approximately 20% of the money that is paid to the creditors, but that fee comes out of your monthly payment to the creditor, so it’s the creditors that are paying for the cost of the consumer proposal.
Once you have filed your proposal, any legal action against you by your creditors is stopped. If your creditors accept your proposal, you make monthly payments to the trustee, rather than making payments to each creditor yourself. If your proposal is not accepted, you are not automatically forced into bankruptcy. However, your creditors can continue or begin legal action against you. The failure to attempt a proposal instead of choosing bankruptcy, can be held against you when you apply to be discharged from bankruptcy.
For free information, tools, and help to manage your debt, contact our preferred debt consolidation non-profit agency, Credit Canada Debt Solutions.
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