A consumer proposal is a legally binding agreement between you and your creditors to repay a portion of what you owe in exchange for total debt forgiveness. For heavily indebted Canadians, it can be a very affordable way to eliminate unsecured debt and gain a fresh financial start.
You may be wondering about the fee to file a proposal. While filing a consumer proposal is not free, fees are included as part of your monthly consumer proposal payments, with no additional costs. Read on to learn about the costs of filing and how payments are calculated to fit your budget.
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Who can file a consumer proposal?
The Bankruptcy and Insolvency Act in Canada outlines who can file a consumer proposal in Canada. The requirements are that you:
- Must be insolvent, meaning you are unable to pay your debts as they come due, or that your assets are worth less than your unsecured debt obligations.
- Must be an individual and reside, carry on business, or have property in Canada.
- Must owe more than $1,000 and less than $250,000 in unsecured debt, not including the mortgage debt you owe on your primary residence.
Debts that can be discharged in a consumer proposal include credit card debt, payday loans, lines of credit, income tax debts, personal loans, and student loans if you have been out of school for seven or more years. You can continue to pay secured debts like a car loan or mortgage if you want to keep your car or house. Or, you can surrender your vehicle or walk away from your mortgage and include any shortfall in your consumer proposal.
While you might qualify to file a consumer proposal, a licensed insolvency trustee will do a complete review of your debts and financial situation before recommending any debt solution.
Do you have to pay to talk to a licensed insolvency trustee?
First and foremost, a consumer proposal can only be filed through a licensed insolvency trustee.
Licensed insolvency trustees (LIT) offer free consultations, with no-obligation to review your debt relief options. There is no fee to speak to a trustee about your financial situation.
Licensed insolvency trustees are federally licensed debt professionals and are regulated by the Office of the Superintendent of Bankruptcy (OSB). Trustees are legally required to explain all debt relief options to you. Not everyone struggling with debt ends up going bankrupt. While some will file a consumer proposal, many more will be provided with suggestions and solutions that will let them manage their debt by themselves.
You are not obligated to work with the first trustee you speak to either. You should choose one you are comfortable working with, and since consultations are always free, you can visit multiple professionals without worrying. The OSB allows Licensed Insolvency Trustees to conduct a debt assessment online so it’s easy to have an initial discussion over the phone or via video to gain insight into your options to deal with your debt.
Always be sure to ask about a trustee’s credentials and verify that they are in fact licensed by the federal government. Beware of unlicensed debt consultants who act as middlemen and refer you to a licensed insolvency trustee, only after charging you hefty upfront fees. You do not need a referral or to pay anyone to recommend a trustee to you. You can speak to an LIT directly yourself.
How much does it cost to file a consumer proposal?
Licensed insolvency trustees are paid to administer consumer proposals. Trustee fees for a consumer proposal are set by legislation and are the same across all LITs in Canada.
You do not make any payments until your consumer proposal is officially filed with the federal government. Filing your consumer proposal is what provides protection from creditor actions. Beware anyone asking you to make payments under a contract that is not your official consumer proposal filing documents.
Your consumer proposal documents will include the agreed upon settlement and monthly payment you propose to your creditors. This offer amount is the only cost of filing a consumer proposal. There are no additional payments to the trustee. Trustee fees are included as part of the single monthly payment you make in your proposal to eliminate your debt. Your unsecured creditors in the proposal receive any balance from the monthly proposal payment after trustee fees have been paid. Effectively, your creditors are covering the cost of a consumer proposal as part of the formal proposal agreement and payment terms.
The costs of filing a consumer proposal include the following:
- A filing fee of approximately $100 paid to the OSB,
- Counselling fees of $85 for each of two mandatory credit counselling sessions,
- Proposal fees to the consumer proposal administrator (trustee) of $1,500 plus 20% of creditor distributions,
- Levy of 5% of creditor distributions payable to the OSB
There are no hidden, up-front, or additional costs in a consumer proposal or any interest charges. Your trustee will explain all the costs to you before your filing.
How are consumer proposal payments calculated?
The goal of a consumer proposal is to help you eliminate your unsecured debt with the most affordable repayment plan that both fits your budget and satisfies your unsecured creditors.
Your trustee will consider three basic factors when determining your consumer proposal payment calculation:
- Who you owe money to and the amount,
- What, if any, assets you have or what you would have to pay in a bankruptcy,
- Your budget and how much you can realistically afford to repay.
As part of the consumer proposal process, the trustee’s job is to balance affordability for your budget, offer an amount that allows your creditors to recover more than they would if you were to file a personal bankruptcy, and to offer enough that your consumer proposal will be accepted by your creditors.
For the lowest monthly payment plan, you can extend your consumer proposal up to a maximum of 5 years or 60 months. But if you can afford it, you also have the option to shorten your proposal term or you can even offer a lump sum payment.
The key takeaway is that any fees you pay in your consumer proposal filing are already included in the same monthly payment you make to eliminate your unsecured debt, and nothing extra. Your licensed insolvency trustee will work closely with you to help you decide on the best debt relief option for your financial situation. If that option is a consumer proposal, the trustee will help you craft a realistic proposal plan for your budget.
If you are struggling to repay your debts, contact a licensed insolvency trustee today for a free consultation and get on a path to becoming debt free.