Understanding a Consumer Proposal in Ontario

Understanding a Consumer Proposal in Ontario

For many Canadians facing overwhelming debt, understanding what a consumer proposal in Ontario involves can be a crucial step toward financial recovery. A consumer proposal is a legally binding agreement between a debtor and their creditors, designed to offer a feasible path to repay a portion of the debt while avoiding bankruptcy. This debt relief option is available through the Bankruptcy and Insolvency Act of Canada, providing a structured and manageable way for individuals to address their financial challenges.

What is a Consumer Proposal in Ontario?

A consumer proposal in Ontario is a formal process where a debtor works with a Licensed Insolvency Trustee (LIT) to propose a repayment plan to their creditors. This plan typically involves repaying a fraction of the total owed amount over a period of up to five years. The goal is to provide a solution that is acceptable to both parties—the debtor gets relief from unmanageable debt, and creditors receive a portion of what they are owed.

How Does a Consumer Proposal Work?

The process of filing a consumer proposal in Ontario involves several key steps:

1. Consultation with a Licensed Insolvency Trustee (LIT)

The first step is to meet with a Licensed Insolvency Trustee. The LIT evaluates the debtor’s financial situation, including income, assets, debts, and expenses, to determine if a consumer proposal is the best option.

2. Preparation of the Proposal

Once the LIT confirms that a consumer proposal is suitable, they help the debtor prepare the proposal, outlining the repayment terms. This plan must be realistic for the debtor and acceptable to the creditors.

3. Filing the Proposal

The LIT files the proposal with the Office of the Superintendent of Bankruptcy (OSB). This action invokes a stay of proceedings, which means creditors can no longer pursue collection actions against the debtor.

4. Creditor Vote

Creditors then have 45 days to either accept or reject the proposal. If the majority (in dollar amount) of creditors accept the proposal, it becomes binding on all creditors.

5. Repayment

Once accepted, the debtor begins making payments according to the agreed schedule. These payments are managed by the LIT and distributed to the creditors.

Benefits of a Consumer Proposal

Opting for a consumer proposal in Ontario offers several significant benefits:

1. Avoids Bankruptcy

One of the primary advantages is that a consumer proposal allows individuals to avoid the more severe financial and personal consequences of bankruptcy.

2. Protects Assets

Unlike bankruptcy, a consumer proposal typically allows debtors to retain their assets, including homes and vehicles.

3. Stops Collection Efforts

Once the proposal is filed, all collection actions and wage garnishments must cease, providing immediate relief.

4. Fixed Payments

The repayment schedule is fixed, making it easier to manage finances and budget accordingly.

Who Can File a Consumer Proposal?

To be eligible for a consumer proposal in Ontario, an individual must owe between $1,000 and $250,000 (excluding a mortgage on their primary residence). The debtor must also be insolvent, meaning they are unable to meet their debt obligations as they come due.

Conclusion

Understanding what a consumer proposal in Ontario entails is essential for anyone struggling with debt. This manageable and dignified debt relief option offers a viable alternative to bankruptcy, helping individuals regain control of their finances. If you are considering a consumer proposal, consulting with a Licensed Insolvency Trustee can provide the guidance needed to make an informed decision and embark on the path to financial stability.

Need Help?

If you’re facing financial difficulties, don’t wait. Reach out to a Licensed Insolvency Trustee in Ontario today to discuss your options, including whether a consumer proposal is right for you.

See if you qualify for debt relief