A consumer proposal is an agreement negotiated with your creditors in the presence of a Licensed Insolvency Trustee and serves as an alternative to Bankruptcy. It’s a legally binding agreement put in place to provide a debtor with immediate protection from creditors and debt collectors and arranges for partial repayment of the total unsecured debt owing. When you file for a consumer proposal, you sign up and agree to pay part of what you owe and the creditors also agree to forgive the balance. Most of your wage garnishments cease immediately and interest stops accumulating from the date you file this agreement. You are also not in jeopardy of losing your assets or house as it is in bankruptcy.
Consumer proposal comes with a number of benefits but unlike in bankruptcy, surplus income is not one of them. However, your assets are guarded and won’t be surrendered to the administrator as part of the proposal agreement. This way, you don’t stand a risk of losing much more than you could under different circumstances. Once your proposal has been accepted, your payments won’t increase even with increase in income. The only much you will owe your creditors is as is with the terms agreed upon in the proposal and nothing more. In this sense, you still remain the sole manager of your finances and even if it is being monitored, the creditors have nothing to hold up against your account.
Another incentive of the consumer proposal is that the negative effect on your credit is less severe than it is with bankruptcy. It also allows you to repay just a portion of what you owe which pumps up your self-esteem and gives you more control than you had before. Most creditors prefer a consumer proposal, not just because they don’t want you to go bankrupt, the main reason behind this is because unlike with bankruptcy, they would acquire much more.
To confirm if you will need a consumer proposal, however, you will need to consult with an LIT and explore the different options available to ascertain whether there is an alternative to it. After a detailed evaluation of your financial situation, they will outline different available options and provide you with the benefits and cons of each one to help find a solution to your financial problems. In case you decide to file a consumer proposal, the LIT will help you come up with one that works both for you and the creditors. They will then file your proposal with The Office of the Superintendent of Bankruptcy after which you immediately stop making payments either directly or to unsecured creditors. If your wages are being garnished by your creditors or they have law suits against you, this also stops promptly. The LIT then submit your proposal to the creditors including a thorough report on your personal situations and the reason behind your financial constraints. This gives the creditors exactly 45 days to either comply with or decline the proposal. A meeting of creditors may be held to corroborate the terms of payment provided one or more of the creditors is owed a minimum of 25% of the total of the proven claims. If no meeting is requested within the 45 days span, the proposal is considered to have been approved by the creditors regardless of any objection received.
If your consumer proposal gets accepted, you are held responsible either for paying a lump sum amount or regular periodic payments to the licensed insolvency trustee and fully comply with any other conditions outlined in the proposal. You also get to retain your assets on condition that you make payments regularly to secured creditors and are liable to two sessions of financial counselling. If it is rejected, you will be required to revise it and resubmit it, opt for an alternative financial solution or ultimately declare bankruptcy. In case you are able to meet all the conditions to the letter, you will legally be released from all all the debts outlined in the proposal. Withal, if you decide to make monthly payments and your payment abstraction is less frequent and 3 months past due time, the proposal is going to be considered annulled. This will give the creditors the authority to take prompt action and collect the money you owe them unless a court order has requested otherwise or an amendment in the consumer proposal filed.