Understanding How Consumer Proposals Work

Facing financial difficulties can be overwhelming. For Canadians struggling with debt, knowing how consumer proposals work could provide a viable path to financial recovery. This article aims to explain the intricacies of consumer proposals, providing a clear and accessible understanding of this debt relief option.

What is a Consumer Proposal?

A consumer proposal is a legally binding agreement between an individual and their creditors to repay a portion of their debts over a set period, usually up to five years. It is a structured alternative to bankruptcy, allowing individuals to consolidate their debt into one manageable monthly payment. A licensed insolvency trustee (LIT) administers the proposal, ensuring it adheres to Canadian bankruptcy law.

Eligibility for a Consumer Proposal

Before understanding how do consumer proposals work, it’s essential to determine eligibility. To qualify, an individual must meet certain criteria:

Be unable to fully repay their debts.
Owe a minimum of $1,000 and a maximum of $250,000 (excluding a mortgage on a primary residence).
Have a stable income to make regular payments as agreed in the proposal.

The Consumer Proposal Process

The process of how consumer proposals work involves several steps:

1. Consultation with a Licensed Insolvency Trustee

The first step is to consult with a licensed insolvency trustee. The LIT will assess your financial situation, discuss your debt relief options, and help you decide if a consumer proposal is the best route. If so, they will work with you to draft the proposal.

2. Proposal Drafting and Filing

In this stage, the LIT prepares the consumer proposal, outlining the repayment plan. This proposal is then filed with the Office of the Superintendent of Bankruptcy (OSB). Once filed, you are granted protection from creditors’ actions, such as wage garnishments or collection calls.

3. Creditor and Court Approval

Creditors have 45 days to accept or reject the proposal. If more than 50% of the creditors (by dollar value) agree, the proposal is accepted and binding on all creditors. Occasionally, a meeting of creditors may be called to discuss the proposal further. If accepted, the court finalizes the approval.

4. Making Payments

Once the proposal is approved, you begin making your agreed-upon payments to the LIT, who distributes the funds to your creditors. Consistent, timely payments are crucial to stay compliant with the terms of the proposal.

5. Completion of the Proposal

After successfully making all the payments, you receive a Certificate of Full Performance. This certificate signifies that you have fulfilled your obligations, and you are officially released from the debts included in the consumer proposal.

Benefits of a Consumer Proposal

Understanding how consumer proposals work highlights several benefits:

Immediate legal protection from creditors.
Single, affordable monthly payment.
Avoiding bankruptcy and its associated stigma.
Retention of assets that might be lost in bankruptcy.

Conclusion

Knowing how do consumer proposals work equips you with the knowledge to make informed decisions during financial hardships. It’s a structured, supportive route to manage debt effectively, allowing Canadians to regain control of their financial futures. If you’re considering a consumer proposal, consult a licensed insolvency trustee to explore this solution’s applicability to your unique situation.

See if you qualify for debt relief

Understanding How Consumer Proposals Work