How Does a Consumer Proposal Work?
A consumer proposal in Ontario is a legally binding, negotiated debt settlement made between you and your creditors with the assistance of a consumer proposal administrator.
A consumer proposal must be filed through a Licensed Insolvency Trustee acting as a consumer proposal administrator. It is a debt relief program developed by the government of Canada made available through the Bankruptcy & Insolvency Act as an alternative to bankruptcy.
Your proposal administrator’s role is to:
- help you determine an affordable repayment plan
- prepare the necessary forms for you to sign
- file the proposal to creditors with the government (to make it legally binding)
- talk to your creditors (so you don’t have to).
Let’s look at an example. Let’s assume you owe different creditors a total of $45,000 in unsecured debts. You may be able to propose to repay your creditors a total of $15,750 in exchange for the elimination of all your debt. You could offer to make payments over 36 months which would result in a payment of $437.50 a month. Alternatively, if your budget requires a lower payment, you could extend your repayment plan to a maximum of 60 months. That would result in a monthly payment of $262.50. Either way, you save $29,250 plus interest.
As you can see, the cost of your consumer proposal is structured through the negotiation process to ensure you can afford the monthly payments. In addition, as a debt settlement program, you repay much less than you owe.
Understanding the Consumer Proposal Process in Ontario
The consumer proposal process can be summarized in 8 basic steps:
- Contact a Licensed Insolvency Trustee for a FREE debt assessment
- Determine a payment plan based on what you can afford and what your creditors would expect to receive if you filed bankruptcy
- Sign the paperwork which contains your payment terms
- The trustee will file the proposal electronically with the government
- Creditors vote to accept, amend or reject the proposal
- You make payments and attend credit counselling sessions
- Upon completion you obtain your Certificate of Full Performance
- Begin the process of rebuilding your credit history
How to File a Consumer Proposal
The procedure begins with a debt assessment with a Licensed Insolvency Trustee. Our friendly and caring team will talk to you about your financial situation and explain all your debt relief options including comparing a consumer proposal vs bankruptcy. We will help you decide if a consumer proposal is right for you.
At Hoyes Michalos, we have extensive experience in filing consumer proposals that work which is why we have a 99% consumer proposal acceptance rate.
Our trustees will determine if you qualify for a consumer proposal and give you advice about what kind of debt proposal may be accepted by your creditors. We also ensure that you can afford the monthly payments based on your budget.
Once the proposal terms are determined and you decide to proceed with filing a consumer proposal we will then:
- prepare the necessary forms for you to sign,
- file the proposal to creditors with the government (to make it legally binding), and
- talk to your creditors (so you don’t have to).
How the Voting Process Works
Acceptance of a debt proposal is determined when your creditors vote whether to accept or reject the consumer proposal. Each creditor gets one vote for every dollar owed, and if more than half of the creditors (based on dollar value) vote “yes”, your proposal is accepted. If accepted, you make payments to Hoyes, Michalos (the Consumer Proposal Administrator) who in turn makes payments to the creditors according to the terms of the consumer proposal. If not accepted, we will help you with other alternatives.
When is a consumer proposal accepted?
By law, your creditors have 45 days to consider whether to accept or reject your proposal. We will count the votes at the end of day number 45, and if a majority of the dollar value of the creditors have voted in favour, your proposal is accepted. If 25% of your creditors request a meeting, or if more than half of the dollar value of creditors’ votes against your proposal, a creditor’s meeting is called, and your Hoyes, Michalos representative will work with you and your creditors to attempt to negotiate alternate terms that are acceptable to you and the creditors.
What happens if the proposal is rejected?
If the proposal is rejected, we will contact your creditors to determine if they would accept alternate terms. In many cases increasing your payment by $50 or $100 per month may be enough to get your creditors to accept the proposal. You also have the option of filing bankruptcy. Creditors realize that if they don’t accept your proposal you may file bankruptcy, and that often encourages creditors to accept all reasonable offers.
Making Consumer Proposal Payments
At Hoyes, Michalos we offer convenient pre-authorized payment plans, and you can select the payment frequency that works for you; weekly, bi-weekly, semi-monthly or monthly.
What if I stop making the payments and default on the performance of the proposal?
If you fail to keep the terms of your debt proposal then the proposal will be annulled. Your creditors would have a claim against you for the amount owed to them before the proposal, minus any amount you paid them during the proposal.
Credit Counselling During Your Proposal
During your proposal period, you will have two credit counselling sessions with an accredited credit counsellor to help you manage your money in the future. Our commitment to making your debt recovery process work includes access to free budgeting, money management and credit rebuilding learning centre offered to our clients. In addition, if you would like a free, third counselling session we would be happy to provide one for you. We want your consumer proposal to be the beginning of a new financial you!
Completion of Your Consumer Proposal
Once payments are completed you will receive a certificate showing the terms of the consumer proposal have been completed and you will be relieved of any balance still owed from the debts that were in the proposal.
For more information about consumer proposals see our Consumer Proposal FAQ page.
If you feel making a consumer proposal in Ontario is the right debt solution for your debt problems your next step is to speak with a Licensed Insolvency Trustee.