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Understanding Consumer Proposals: Can You Add to One?

An illustrated guide displaying a person thoughtfully adding extra documents to an already open, glowing 'Consumer Proposal' folder on a desk, with financial charts and calculators scattered around.

Understanding Consumer Proposals: Can You Add to One?

Dealing with overwhelming debt is not only stressful but can also seem like navigating through a never-ending maze. For Canadians, a consumer proposal offers a legally binding solution that helps manage and reduce debt without filing for bankruptcy. However, a common question arises: Can you add to a consumer proposal once it’s been filed? Before delving into the nuances of modifying a consumer proposal, it’s crucial to understand what it entails.

What Is a Consumer Proposal?

A consumer proposal is a formal, legally binding process designed for individuals to settle their unsecured debts for less than what they owe. It allows debtors to make an offer to their creditors to pay back a percentage of their debts over a period of time, up to a maximum of five years. During this time, interest on the debts stops accumulating, and creditors are prevented from taking collection actions against the debtor, provided the terms of the proposal are met. This process is administered by a Licensed Insolvency Trustee (LIT), who works with both the debtor and creditors to reach a fair agreement.

Can You Add Debts to a Consumer Proposal Once It’s Filed?

The simplicity of a consumer proposal is that it encapsulates all of your unsecured debts at the time of filing. However, what happens if you incur new debts after your proposal has been accepted? Unfortunately, you cannot add new debts to an existing consumer proposal. Once your proposal is filed and accepted by your creditors, any new unsecured debts you incur are not included. This means you are responsible for paying these new debts in full, outside of your consumer proposal agreement.

What Happens If You Omit Debts?

When filing a consumer proposal, it’s important to disclose all unsecured debts accurately. If you inadvertently omit a debt, and the oversight is discovered while your proposal is active, you might be able to amend your proposal to include the forgotten debt, provided your creditors agree to the amendment. The process of amending a proposal can be complex, requiring the assistance of your LIT to navigate. However, intentionally omitting debts is fraudulent and could lead to the annulment of your consumer proposal.

Strategies for Managing New Debts

Since new debts cannot be added to an existing consumer proposal, it’s crucial to avoid incurring new unsecured debts during this period. Strategies to manage finances effectively include creating a realistic budget, establishing an emergency fund to cover unforeseen expenses, and seeking financial advice to avoid overextending financially in the future.

Conclusion

A consumer proposal can be a lifeline for those drowning in debt, providing a path to financial recovery. However, understanding the limitations and requirements, such as the inability to add new debts once it’s filed, is crucial. With careful planning and discipline, individuals can navigate through their consumer proposal successfully and rebuild a stable financial foundation. Should questions or uncertainties arise, consulting with a Licensed Insolvency Trustee can provide guidance and peace of mind throughout the process.

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