Common Consumer Proposal Questions

Let’s start with a consumer proposal definition: A consumer proposal is a formal binding offer made to your creditors to settle your debt for less than the full amount owing. An alternative to bankruptcy, it is a legal process filed under the Bankruptcy & Insolvency Act through a Licensed Insolvency Trustee. At the completion of the proposal all unsecured debts included in the proposal are forgiven.

To help you decide if a consumer proposal is the right option for you, we’ve provided some answers to the most frequently asked questions we receive about consumer proposals in Canada.

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I’m Doug Hoyes, a Licensed Insolvency Trustee with Hoyes Michalos and Associates, and today I’d like to answer for you some common consumer proposal questions. First of all, what is a consumer proposal? Well, in really simple terms, it’s a deal that we make with the people you owe money to to settle your debts. You sit down with a Licensed Insolvency Trustee, we review your situation and come up with a plan that will settle your debts, and that’s the offer that we make to the people you owe money to. In many cases your debts can be reduced by 70% or more.

How much should I offer in a consumer proposal? Well there’s three rules of thumb that we kind of go by. First of all, your proposal has to offer the people you owe money to more than what they would expect if you went bankrupt. That’s kind of obvious or else they wouldn’t want to accept your proposal. Second, most of them have their own internal rules; they want to get a certain number of cents on the dollar. So, we know roughly what they’re looking for and we will make sure we tell you what kind of proposal would be acceptable based on who you owe money to. And third and most important, the payments in the proposal have to be affordable for you. The whole point of a proposal is to reduce what you’re paying each month and reduce your debt. So we want to make sure it works for you.

How long does a consumer proposal last? Well, federal law says that the maximum period a consumer proposal can run for is 60 months; that’s five years. That’s actually a good thing because it means that we can figure out what your creditors want and then we can stretch those payments over a maximum of five years, which makes the monthly payment affordable for you.

Is there interest on a consumer proposal? Well, a lot of people are surprised to find out that, no, the payments you make on a consumer proposal are completely interest free. So for example, if you owe $40,000 to all your creditors and they agree to accept a payment in your proposal of $12,000, that’s it; that’s all you pay. There’s no interest added to it. So in that example you’d be paying $200 a month for 60 months and that’s it. Once it’s paid, your debt is gone.

Can I pay off my proposal early? Well, yes. The beauty of a proposal is, once they’ve agreed to the full amount, you can pay it off as quickly as you want. And a lot of people do that. If your situation improves, you’ve got more money coming in; you can increase the payments and get it paid off quicker.

How long does it affect my credit? When you file a consumer proposal, the Office of the Superintendent of Bankruptcy reports it to the credit bureaus. There’ll be a note that says the date you filed it and then another note when it’s completed, and that note will stay on your credit report for three years. Now remember, because you’ve filed the proposal and eliminated all your debt, you’ve freed up a bunch of cash each month, so you’ll be able to start saving money, and saving money will help you begin to repair your credit a lot sooner.

Can tax debts be included in a consumer proposal? Well, yes. Canada Revenue Agency, for unsecured tax debts, is a normal creditor. They’re bound by a consumer proposal just like everyone else.

Do I qualify for a consumer proposal? Well the law says if your total debts are $250,000 or less, not including the mortgage on your principal residence, then yes, you are legally allowed to file a consumer proposal.

Who should file a consumer proposal? Consumer proposal is a good alternative to bankruptcy if you think you’re going to have surplus income or if you’ve got assets that you’re afraid to lose in a bankruptcy. However, to really find out if a proposal makes sense for you, you need to sit down with a Licensed Insolvency Trustee who can review your entire situation and help you understand what’s best for you in your unique situation. To find out more you can go to our website at Hoyes.com or you can check out our consumer proposals play list right here on YouTube.

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What are the common benefits of filing a consumer proposal?

A consumer proposal is a viable alternative to declaring bankruptcy in Canada. Choosing the right solution depends on your specific situation. The main benefits of a consumer proposal in Ontario include:

  • you keep your assets
  • you make one lower monthly payment
  • it’s a government program
  • it provides creditor protection and court approval
  • there are early payment options
  • you avoid bankruptcy

What are the key differences between a consumer proposal and bankruptcy?

  • You do not surrender assets in a consumer proposal, including tax refunds.
  • Monthly payments are usually lower in a bankruptcy.
  • A proposal requires the pre-approval of your creditors through a voting process. Bankruptcy is automatic although your creditors can oppose your discharge.
  • Payments in a consumer proposal are negotiated up front. Bankruptcy payments are defined by legislation and can increase if your income increases.
  • You can pay off a consumer proposal early. Bankruptcy has a pre-defined length determined by legislation.
  • A consumer proposal has fewer required duties than bankruptcy. For example there is no requirement to report your income and expenses monthly in a consumer proposal.

Read more for a full comparison between bankruptcy and a consumer proposal

What does a consumer proposal cost?

You must offer more than what your creditors would expect to receive in total in a bankruptcy scenario to satisfy your creditors. When determining how much to pay, the trustee will look at:

  • What you own and what you earn to determine how much would be available to your creditors in a bankruptcy.
  • Your budget to determine that you can afford the payments.

There are no extra or up-front fees. Your LIT or consumer proposal administrator is paid out of the amount you agree to pay your creditors. The cost for filing a consumer proposal is covered by your agreed upon proposal payments and are not a separate charge.

What is the acceptance rate in a consumer proposal?

There are three rules of thumb for a successful consumer proposal:

  1. You must offer more than creditors would receive in a bankruptcy.
  2. It must meet the minimum expectations of your creditors.
  3. Your payments must be affordable.

At Hoyes, Michalos we have a 99% acceptance rate.

When will my consumer proposal be approved?

Once your proposal documents are signed they will be electronically filed with the government and your creditor protection starts. At that time, you stop making payments to your creditors.

  • A consumer proposal is approved if a majority of creditors (based on the dollar value of proven claims) vote yes after which it is approved by the Court.
  • A meeting is required if at least 25% of your unsecured creditors ask for one (based on the dollar value of proven claims).
  • Creditors have 45 days to vote or request a meeting.
  • Failing to vote is considered a yes vote.

It is possible to negotiate to try to obtain agreement.

Can I leave a creditor out of my proposal?

No. You cannot pick and choose which debts to include. A consumer proposal eliminates unsecured debts including credit cards, lines of credit, payday loans and tax debts.

Consumer proposals do not affect secured creditors. You cannot modify the terms of secured debt in a consumer proposal.

There are some debts that cannot be settled by a consumer proposal including student loans less than 7 years old, support and alimony obligations, court fines and penalties.

Read more in our article: Must a consumer proposal include all my creditors?

How long does a consumer proposal last?

Payments in a consumer proposal can be spread over a maximum of 60 months. If you can afford more each month, you can shorten your proposal term or offer a lump sum payment. Consumer proposal payments are interest free no matter how long the term of your proposal, up to a maximum of five years.

Can I pay off my proposal early?

Yes. While your total payments are fixed once your creditors accept the proposal, you can pay off your proposal early and begin the recovery process sooner.

Can tax debts be settled by a consumer proposal?

Yes. Unsecured tax debts are included in a proposal and CRA is bound by the terms of an accepted proposal. See our tax debt forgiveness article.

Will a consumer proposal stop a wage garnishment and collection calls?

Yes. A consumer proposal is a legal proceeding under the Bankruptcy and Insolvency Act that provides a stay of proceedings that immediately stops all creditor actions including most wage garnishments and calls from creditors and collection agencies. Once you sign your proposal documents, they will be electronically filed with the government and you immediately gain protection from your creditors.

Read more: How a consumer proposal stops a wage garnishment

Do I have duties during my proposal?

The duties required in a consumer proposal are much less than those in a bankruptcy. During your proposal, you must:

  • Make all required payments
  • Attend two credit counselling sessions.
  • Unlike bankruptcy you do not need to report your income and expenses and you do not lose any assets, including any tax refunds owing to you.

What happens if I miss my proposal payments?

You can defer up to two payments but if you fall three payments in arrears your proposal will be ‘deemed to be annulled’, your debts are reinstated and you lose your creditor protection.

How long does a consumer proposal stay on my credit report?

The Office of the Superintendent of Bankruptcy reports all consumer proposals and bankruptcy filings monthly to the different credit bureaus. If you file a consumer proposal a notice will appear, including the date you filed, that indicates that you entered a repayment arrangement with your creditors.

This notice remains on your report for 3 years after your proposal is completed or 6 years after you file / default on your loan whichever comes sooner.

If you complete your consumer proposal in five years, the note will be removed one year after you finish (which is 6 years after you filed).

Read more: How a consumer proposal affects your credit

Do I qualify for a consumer proposal?

Any individual who owes less than $250,000 (excluding a mortgage on a personal residence) can file a consumer proposal to settle their debts. A consumer proposal is a viable alternative if you have significant surplus income or assets you want to keep.

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“I was overwhelmed with credit debt. Being bombarded with constant phone calls, and letters, from debt collectors was very stressful. It seemed like there was no way out. Until I heard about Hoyes, on my local talk radio station. They are friendly, caring, knowledgeable, and professional, with many year's of experience. During my first meeting, they took the time to learn about my debt, and financial situation. Explaining my different options, and helping to come up with a plan that would work best for me. They helped me avoid filing for bankruptcy, by putting forward a consumer proposal to my creditors. My proposal was accepted, and I am happy to finally be debt free, thanks to Hoyes. It feels like a huge weight has been lifted off of my shoulders. Hoyes are the best debt relief specialists.”

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