Understanding How a Consumer Proposal Works in Canada

For Canadians grappling with significant debt, understanding how a consumer proposal works in Canada can be crucial. A consumer proposal is a legally binding agreement between you and your creditors to repay a portion of your debts over a period of up to five years. It offers a viable alternative to bankruptcy, allowing you to keep your assets while achieving financial stability.

What is a Consumer Proposal?

A consumer proposal is a debt relief solution administered through a Licensed Insolvency Trustee (LIT). It involves making an offer to your creditors to pay a percentage of the owed amount or extend the time you have to pay off the debts, or both. This proposal, once accepted, provides protection from collection calls and wage garnishments, offering individuals a structured path towards debt relief.

Steps to File a Consumer Proposal

1. Assess Your Financial Situation

The process begins with a thorough assessment of your financial situation. This includes detailing all debts, assets, income, and expenses. A Licensed Insolvency Trustee will help evaluate whether a consumer proposal is the right option for you.

2. Draft the Proposal

Your trustee will draft a proposal outlining the terms of repayment. This draft includes how much you will pay, the duration of payments, and the proposed settlement. The proposal needs to be reasonable enough to gain the approval of the majority of your creditors.

3. Filing and Notification

Once the proposal is drafted, it is filed with the Office of the Superintendent of Bankruptcy (OSB). Your creditors are notified, and collection actions must cease immediately. This includes stopping wage garnishments and collection calls.

4. Securing Creditor Approval

Creditors have 45 days to either accept or reject the proposal. If a majority in value of your creditors accept the proposal, it becomes binding on all parties. If they reject it, you may renegotiate or consider alternative solutions.

Benefits of a Consumer Proposal

Understanding how a consumer proposal works in Canada includes knowing its many benefits. These include:

• Stopping Wage Garnishments and Collection Calls
• Retaining Control Over Assets
• Freezing Interest Charges
• Single Monthly Payment
• Improves Financial Management Skills
• Avoiding Bankruptcy

Impact on Credit Rating

It is important to note that a consumer proposal will impact your credit rating. It is recorded as an R7 rating, which stays on your credit report for three years after completing the proposal. However, since you are proactively addressing your debts, it is seen more favorably than a bankruptcy, which has a more severe and longer-lasting impact.

Conclusion

For those wondering how does a consumer proposal work in Canada, it is a structured debt relief solution offering several benefits over bankruptcy. By understanding and navigating the process with the help of a Licensed Insolvency Trustee, Canadians can regain financial control, protect their assets, and work towards a debt-free future. If debt is overwhelming you, consider speaking with a trustee to explore if a consumer proposal is the right solution for you.

See if you qualify for debt relief