Have your debts become too difficult to manage? The Consumer Proposal is a debt relief solution available to certain people. It’s a negotiation where your Licensed Insolvency Trustee (LIT) comes to an agreement with your creditors regarding the conditions and monthly payments needed to repay your debts. Creditors can accept or decline the offer. If the proposal is accepted, you must meet your payment obligations during the fixed period.
Under the Bankruptcy and Insolvency Act, 3 payment delays automatically cancel your consumer proposal. When this happens, people have to face the cancellation of their consumer proposal and consider alternative options to deal with their financial problems.
What is a consumer proposal?
A Consumer Proposal is a solution under the Bankruptcy and Insolvency Act that involves making a proposal to your creditors in order to settle your debts. Its purpose is to consolidate all of the debtor’s debts into monthly payments and spread the payment period over several years. The proposal is applicable to unsecured debts like credit cards, bills and taxes. It is therefore sent to unsecured creditors.
The proposal allows you to:
- Pay off your debts over a period of time that can be up to 5 years
- Reduce your debt by up to 70% or more
- Reduce the amount payable each month
The main condition to be met in order to be able to file a consumer proposal is that the total amount of your expenses, without including the mortgage on your principal residence, must not exceed $ 250,000.
You must also be insolvent, i.e.:
- Have debts of a minimum value of $ 1,000
- Reside or own property in Canada
- Have financial problems like:
- Not being able to pay your debts on the due dates
- No longer being able to pay your current bills
- The value of all the property you own is less than that of all of your debts combined
What are the steps of a consumer proposal?
The process of a consumer proposal request can be time consuming and requires the presence of a Licensed Insolvency Trustee. Here are the steps of this procedure:
1. First consultation
You start by meeting with your advisor or LIT to jointly assess your financial situation and explore the different solutions available to you. You will have some documents to sign, then the recovery process can start. Your first consultation with the trustee is free with Groupe Serpone.
2. Submission of the proposal
The LIT is responsible for filing all the necessary documents with the Office of the Superintendent of Bankruptcy (OSB) to begin the process of the consumer proposal.
3. Notice to creditors
Your bankruptcy trustee then informs your creditors. The latter will then deal with him. They will therefore no longer be able to harass you and constantly call you.
4. Acceptance or refusal of the proposal
Your creditors have 45 days to accept or reject the proposal. They may request a meeting of creditors to discuss your proposal with your LIT. For a meeting to take place, at least 25% of all creditors must request it, otherwise your proposal is considered accepted.
5. Meetings with your Licensed Insolvency Trustee
You will have to participate in two consultation meetings. During these, your bankruptcy trustee will give you advice on how to maintain good financial health and analyze your financial habits. He will give you tools and techniques to make sure you don’t have to fall back into this predicament again. During the second meeting, you will receive further advice that will help you better plan your future and manage your budget to avoid falling back into debt.
6. Approval of the proposal
If your creditors have not requested a review within 15 days of accepting your proposal, your request is approved by the court.
7. Debt release
Once all the necessary payments established in your consumer proposal have been made, your Licensed Insolvency Trustee issues a certificate and releases you from your debts.
What cancels a consumer proposal?
There are two major reasons for a consumer proposal to be canceled. The first and most common reason is late payment. If you have a 3-month delay in payment, your consumer proposal will be automatically canceled.
The second reason is related to the court. The latter has the right to intervene in the acceptance or rejection of the consumer proposal if certain conditions have not been met. This is rather rare because the court hardly ever intervenes.
What are the consequences of a consumer proposal annulment?
The consequences of a consumer proposal annulment can be severe. First, you will immediately lose the amount of money that was sent to your creditors. Any debt that has already been paid off during the proposal period will no longer count and you will have to start all over again.
Second, all interest charges, bills, and penalties that were included in the proposal will come back again as if you had never filed a proposal. Third, the cancellation of the offer affects your credit report. This will remain in your file for 6 years. Ultimately, when a consumer proposal is canceled, it will then be difficult, if not impossible, to make another.
Consumer proposal annulment: what are your options?
According to the Bankruptcy and Insolvency Act, an automatic cancellation of your consumer proposal occurs immediately if you are 3 months in arrears. If this is your case, the following options are available to you:
1. Ask your Bankruptcy Trustee to reinstate the proposal
You can turn to your Licensed Insolvency Trustee who can help you reinstate your consumer proposal. In order for your trustee to be able to help you, you must be able to demonstrate within 30 days of the cancellation that you are able to remedy your fault. To reinstate your consumer proposal, your LIT may ask you to pay the missing amount in full.
Please note that your creditors will be notified directly after you cancel your consumer proposal. They can object to the reinstatement of the proposal within 60 days of the cancellation.
2. Ask the Court to reinstate the proposal
If you miss the 30-day deadline after cancellation, you can ask the court to reinstate the proposal. This type of request is quite complex, it is advisable to consult your trustee to complete the request without risk of refusal.
If you can explain the reasons for your late payment and ensure that you are able to pay everything on time, the odds could be on your side.
3. Declare bankruptcy
If it proves impossible to reinstate your consumer proposal, you can consider personal bankruptcy to regain your creditor protection and eliminate the majority of your debts. Before proceeding with your bankruptcy application, it is advisable to consult your Licensed Insolvency Trustee in order to analyze your financial situation in detail and verify if this is the best solution.
4. Request permission to submit a new proposal
You can go to court for permission to file a new consumer proposal if you need extra time to pay off the late debts. However, be sure to consult your trustee to see with him if this option is viable in your case.
5. Negotiate with your creditors
Following the cancellation of your consumer proposal, your protection against creditors will cease and they will be able to contact you to claim the amounts owed to them. Be aware that your debts can potentially include retroactive interest following the filing of your proposal.
Negotiating with creditors is possible, but difficult. Good negotiation will allow you to reduce the amount of debt, extend the repayment period, or reduce interest rates. This approach is tricky, however, because your creditors are not related to each other, so it can be time consuming.
How to avoid a consumer proposal annulment?
Do you risk not being able to meet the payment terms of your consumer proposal due to a change in your personal or professional life? Here are some options to consider in order to prevent the cancellation of your consumer proposal:
Assess your financial situation
It is always advisable to consult a licensed insolvency trustee to assess your financial health and determine the solution that best suits your needs and your reality. This way, you are sure to choose the best debt relief solution.
Modify your consumer proposal
If you are no longer able to make your payments on a regular basis, you can talk to your trustee to change the terms of your proposal and prevent it from being canceled. If ever there is a significant change in your life that affects your income, be sure to contact your trustee as soon as possible in order to find a solution. Remember that you can only miss two payments, the third will automatically cancel your proposal.
Reimburse your consumer proposal
You can take out a loan from a financial institution to pay off your consumer proposal faster. This option has its advantages and disadvantages. Getting a loan gives you more flexibility to repay your payments and allows you to avoid having your proposal canceled. In addition, if you meet your payment obligations you will be able to erase the note from your credit report, which could otherwise be there for 8 years. If you pay on time, you can improve your credit rating. Therefore, you will be able to get a mortgage right after paying off all of your debts.
Be aware, however, that this option can also have drawbacks:
- More interest charges and debt to pay: You will have to pay more interest charges and there is a risk that you will incur more debt.
- Loan Application Rejection Risk: Applying for a loan with a consumer proposal can be a daunting task. Each refused loan application will result in an additional negative note in your credit report.
You find yourself in a complex financial situation and you don’t know what to do? Our team of bankruptcy and insolvency experts offers you a range of personalized services tailored to your needs. Please do not hesitate to contact us for a free consultation.