A consumer proposal has a lot of advantages. It offers legal protection while you make a settlement offer to your creditors. It also allows you to negotiate payments you can afford while keeping assets like a home, RESP and other investments. Moreover, it offers substantial flexibility in terms of payment terms. However, there are certain rules that must be followed, such as which creditors are included in a consumer proposal.
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Dealing with unsecured creditors
A consumer proposal is an arrangement to repay your unsecured creditors a portion of what you owe. By law, all unsecured creditors must be included. It is not possible to exclude money owing to family, a friend or any one creditor.
There is an advantage to the fact that you must include all creditors. A consumer proposal is meant to be a fresh financial start. If you begin picking and choosing which creditors to include or exclude you may find that you are not obtaining the long term financial relief that you are looking for. Your objective is to eliminate your unsecured debt so that you can live on your paycheque without the burden of old debt payments.
Other debt solutions may allow you to select which creditors to include, permitting you to omit certain debts. A debt management plan through a credit counsellor will allow you to make repayment arrangements with only specific creditors. However, it is not unusual for us to receive a call from someone who has made partial payments under a debt management plan, only to discover that their other debts are still causing them financial problems. In fact, certain creditors won’t even participate in a debt management plan such as Canada Revenue Agency and most payday loan lenders, making a consumer proposal a better option if you have tax debts or payday loans.
Ongoing bill payments, like your cell phone bill, are a bit of a can of worms. Technically, if you have an outstanding payment for services up to the date of the proposal they are an unsecured creditor. However, most service providers, such as Roger’s for cell phone payments, are happy to continue to provide you with the service as long as your account is current and they do not even file a claim in your proposal. You can cancel these services, and any others (such as gym memberships, cell phone plans, subscriptions) prior to filing your proposal and any unpaid balance, or penalties can be included in your proposal.
Student debt is included in a consumer proposal and will be eliminated if you have been out of school for more than seven years. Student debt less than seven years old, can be discharged in a proposal but only with the agreement of the student loan lender.
Secured creditors not included
Consumer proposals do not include any secured creditors including your mortgage lender and car loan lender. Your secured creditors do receive notice that you have filed a proposal, however they do not vote and do not participate in any money distributed as part of the proposal.
You can choose to terminate these agreements prior to filing your proposal and any shortfall owing to those creditors will become a debt eliminated by your proposal. This may be a good option if keeping up with your mortgage payment and housing costs is difficult and these costs are the underlying cause of your financial problems. Similarly, if you leased or financed an expensive car, you can turn in the vehicle prior to filing a consumer proposal and these creditors will be included in your proposal for any amount owing above the recovery value from the sale of the vehicle.
Debts excluded by bankruptcy law
There are a few unsecured debts that are not forgiven in either a consumer proposal or bankruptcy. These are written into the Bankruptcy & Insolvency Act and include support arrears, court fines and penalties, and fraudulent debts.
As you can see, a consumer proposal is a viable way to eliminate all your overwhelming unsecured debt and get your life back on track. If you are dealing with creditor calls, or being threatened with legal action, contact us for a free, no obligation consultation to see if a consumer proposal can help you eliminate your debts and stop dealing with those creditors again.