A consumer proposal is just one option for dealing with debt. As a debt relief approach it has it's own advantages and disadvantages over other programs that help you get out of debt. For example:
- it can be better than bankruptcy if you have enough income to trigger surplus income payments or have assets that you would like to keep like RESPs or some equity in your home;
- it can be better than a debt management plan because you can offer to repay less than you owe, often up to 85% less, which results in a significantly lower monthly payment;
- it is better than an informal debt settlement program because it provides legal protection from creditor actions (like wage garnishments and collection calls) right from the beginning.
Having said all that, a consumer proposal is not the right option for everyone. The best way to tell if a consumer proposal is right for you is to talk with someone who administers consumer proposals. In Canada the only person who can be a consumer proposal administrator is a Licensed Insolvency Trustee (formerly called a bankruptcy trustee in Canada).
Making that call can be a scary decision. Here is what will happen during the assessment phase in the process of filing a proposal. It is important to know that this initial assessment is free and you are not committed to anything by talking with a licensed insolvency trustee about your situation.
Conducting A Consumer Proposal Assessment
Assessing Your Financial Situation
Initially you will meet with a consumer proposal administrator to evaluate your situation and determine if a consumer proposal is the right option for you. Your trustee will look at your assets, your income and your family situation to see how a consumer proposal would compare to other options for you.
It is very important that both you and your trustee are comfortable that you will be able to meet your proposal terms.
- You want to be sure completion of your proposal is successful so it eliminates your debts.
- Your trustee is required by law to submit a report to the Office of the Superintendent of Bankruptcy stating that they think the proposal is fair to all parties and that you, as the debtor, will be able to meet the agreed upon terms.
Determining The Proposal Payment Amount
When determining how much to pay, your trustee will look at who you owe money to and how much, what type of assets you have, as well as your budget.
These factors will be used to determine an affordable monthly payment for you that will also be agreeable to your creditors.
Deciding on the Number of Payments
In a consumer proposal, you may make payments for up to 5 years or 60 months. To achieve the lowest monthly payments, you would spread them over the full 60 months.
However, if you can afford more each month, you can shorten your proposal term or offer a lump sum payment.
The purpose of this first step in a consumer proposal is to see if you have the ability to make a proposal to your creditors. If you do, you may choose to proceed with filing a proposal. If not, your trustee can talk to you about other options including filing personal bankruptcy.
If you decide to proceed with a consumer proposal, documents will be prepared and signed by you. These documents include the proposal terms determined during the assessment stage, along with information about your creditors, your debts and your assets.