Qualifying for a Consumer Proposal: A Simple Guide

Understanding Consumer Proposals

A Consumer Proposal is a legally binding agreement facilitated by a Licensed Insolvency Trustee (LIT) that allows individuals to settle their unsecured debts by paying a portion of what they owe to their creditors. This process is governed by Canada’s Bankruptcy and Insolvency Act and is often considered a viable alternative to bankruptcy. It provides relief to individuals by stopping interest accumulation, protecting from creditor harassment, and allowing them to retain their assets.

Eligibility Criteria for Filing a Consumer Proposal

To qualify for a Consumer Proposal, there are several key criteria that individuals must meet. Understanding these requirements is crucial for those considering this debt relief option.

1. Debt Limit

The total amount of unsecured debt must not exceed $250,000, excluding the mortgage on a primary residence. For individuals who owe more, a Division I Proposal might be another option to consider.

2. Inability to Repay Debts

Applicants must demonstrate that they are unable to fully repay their debts as they become due. This does not mean they must be completely devoid of income. Rather, their income is insufficient to pay off debts in full, considering their living expenses and financial obligations.

3. Stable Source of Income

Although struggling with debt, individuals must have a consistent source of income. This requirement ensures that the proposer can make regular payments towards the Consumer Proposal agreement.

4. Resident or Business Connections in Canada

The individual filing the proposal must either be a resident of Canada, have assets in Canada, or do business in Canada. This jurisdictional requirement ensures that the Canadian legal system can adequately oversee the Consumer Proposal process.

5. Solvency Status

The applicant cannot be currently bankrupt. If bankruptcy was a prior condition, they must have been discharged from it before considering a Consumer Proposal.

Navigating the Process

To start the process, individuals should first consult with a Licensed Insolvency Trustee, who plays a pivotal role in creating and administering Consumer Proposals. After determining eligibility, the LIT will work with the individual to craft a proposal that outlines how they plan to repay a portion of their debt. This proposal will then be sent to creditors, who will have 45 days to accept or reject it. A majority vote (in dollar value) in favor is needed for the proposal to be accepted. Once approved, the individual must adhere to the terms of the agreement, which typically lasts up to five years, to successfully complete their Consumer Proposal.

Conclusion

A Consumer Proposal is a powerful tool for Canadians overwhelmed by unsecured debt, offering a path towards financial recovery while avoiding the severe repercussions of bankruptcy. By understanding the qualifying criteria and following the structured process with the assistance of a Licensed Insolvency Trustee, individuals can regain control over their financial situation and work towards a debt-free life.