Resources

What is a Consumer Proposal?

A consumer proposal is a solution under the Bankruptcy and Insolvency Act that involves making an offer to your creditors 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 applies to unsecured debts such as credit cards, bills, and taxes. Therefore, it is made to unsecured creditors.

The proposal allows you to:

• Repay your debts over a period of up to 5 years
• Reduce your debts by up to 70% or more
• Reduce the amount you pay each month

The main condition for making a consumer proposal is that your total unsecured debts, excluding the mortgage on your primary residence, must not exceed $250,000.

You must also be insolvent, meaning:

• Have debts with a minimum value of $1,000
• Reside or own assets in Canada
• Experiencing financial difficulties such as:

• Inability to pay your debts on their due dates
• No longer being able to pay your current bills
• The total value of your assets is less than the total value of your debts

How does a consumer proposal work?

The process of filing a consumer proposal can be time-consuming and requires the assistance of a Licensed Insolvency Trustee. Here are the steps involved in a proposal:

1. Initial Consultation

You begin by meeting with your advisor or Trustee to jointly assess your financial situation and explore the various solutions available to you. You will need to sign some documents, and then the recovery process can commence. Your initial consultation with the Trustee is free with Groupe Serpone.

Free Consultation

2. Filing the Proposal

The Trustee is responsible for filing all necessary documents with the Office of the Superintendent of Bankruptcy (OSB) to initiate the consumer proposal process.

3. Notice to Creditors

Your Trustee will then inform your creditors of your action. They will subsequently deal directly with the Trustee. This means they will no longer be able to harass you or call you constantly demanding payments.

4. Acceptance or Refusal of the Proposal

Your creditors have 45 days to decide whether to accept or refuse the proposal. They may request a meeting of creditors to discuss your proposal with your Trustee. For a meeting to take place, at least 25% of all creditors must request it; otherwise, your proposal is considered accepted.

5. Counseling Sessions

You will be required to attend two counseling sessions. During these sessions, your Trustee will provide advice to help you maintain good financial health and analyze your spending habits. They will equip you with tools and techniques to ensure you do not fall back into a difficult financial situation. During the second session, you will receive further advice to help you better plan your future and manage your budget to avoid becoming over-indebted again.

6. Approval of the Proposal

If your creditors do not request a review within 15 days after your proposal's acceptance, your application is approved by the court.

7. Discharge from Debts

Once the payments outlined in your proposal have been completed, your Licensed Insolvency Trustee will issue a certificate, discharging you from your debts.

What can cancel a consumer proposal?

There are two main reasons why a consumer proposal can be cancelled. The first and most common reason is late payment. If you are 3 months behind on your payments, your consumer proposal will be automatically cancelled.

The second reason is related to the court. The court has the right to intervene in the acceptance or refusal of a consumer proposal if certain conditions have not been met. This is quite rare, as the court almost never intervenes in the cancellation of a proposal.

What are the consequences of a consumer proposal being cancelled?

The consequences of a consumer proposal annulment can be severe. Firstly, upon annulment, you will immediately lose any money already paid to your creditors. Any debt already repaid during the proposal period will no longer be considered settled, and you will have to start over from scratch.  

Secondly, all interest charges, bills, and penalties that were included in the proposal will be reinstated as if you had never filed a proposal. Thirdly, the annulment of the proposal affects your credit file. This will remain on your record for 6 years. Finally, when a consumer proposal is annulled, it will then be difficult, if not impossible, to file another one.

Consumer Proposal Annulment: What Are Your Options?

Under the Bankruptcy and Insolvency Act, your consumer proposal is automatically annulled immediately if you are 3 months in arrears with payments. If this applies to you, do not worry. Should your proposal be annulled, the following options are available to you:

1. Request Your LIT to Reinstate the Proposal

You can turn to your Licensed Insolvency Trustee who can, in turn, help you reinstate your consumer proposal. For your LIT to assist you, you must be able to demonstrate within 30 days of the annulment that you are capable of rectifying your default. To reinstate your consumer proposal, your LIT might ask you to pay the full outstanding amount.

Please note that your creditors will be directly informed after the annulment of your consumer proposal. They can object to the reinstatement of the proposal within 60 days following the annulment.

2. Request the Court to Reinstate the Proposal

If you miss the 30-day deadline after the annulment, you can submit a request for reinstatement to the Court. The process for this request is quite complex, so it is advisable to consult your trustee to complete the request without risk of refusal.

If you can clearly explain the reasons for your payment delay and assure that you are able to make all payments without further delay, the odds might be in your favor.

3. Declare Bankruptcy

If it proves impossible to reinstate your consumer proposal, you may consider personal bankruptcy to regain protection from creditors and eliminate most of your debts. Before proceeding with your bankruptcy application, it is advisable to consult your Licensed Insolvency Trustee to analyze your financial situation in detail and determine if it is the best solution.

4. Request Permission to File a New Proposal

You can apply to the Court to obtain permission to file a new consumer proposal if you need additional time to pay the debts incurred due to the delay. However, be sure to consult your trustee to determine if this option is viable in your situation.

5. Negotiate with Your Creditors

Following the annulment of your consumer proposal, your protection from creditors ceases, and they will be able to contact you again to claim the amounts owed to them. Be aware that your debts may potentially include retroactive interest following the filing of your proposal.

While negotiation with creditors is possible, it is challenging. Successful negotiation can allow you to reduce the debt amount, extend the repayment period, or lower interest rates. However, this approach is delicate because your creditors are not bound to each other, so it can be very time-consuming.

Need Advice from an Insolvency Expert?

How Can You Avoid the Annulment of a Consumer Proposal?

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 circumstances. This way, you can be sure to choose the best debt relief solution.

Modify Your Consumer Proposal

If you are no longer able to make your payments regularly, you can speak to your trustee to modify the terms of your proposal and avoid its annulment. If there is a significant change in your life that affects your income, make sure to contact your trustee as soon as possible to find a solution. Remember that you can only miss two payments; the third will result in an automatic annulment of your proposal.

Repaying Your Consumer Proposal

You can obtain a loan from a financial institution to repay your consumer proposal more quickly. This option has its advantages and disadvantages.

Obtaining a loan gives you more flexibility to make your payments and helps you avoid the annulment of your proposal. Furthermore, if you meet your payment obligations, you can remove the note from your credit file, which might otherwise remain there for 8 years. By paying on time, you can therefore improve your credit score.

Consequently, you will be able to obtain a mortgage immediately after all your debts have been repaid.

However, please be aware that this option also has potential drawbacks:

• Increased Interest and Debt: You will face higher interest charges, which increases the risk of incurring further debt.
• Risk of Loan Application Refusal: Applying for a loan after filing a proposal can be a challenging task. Each denied loan application will further impact your credit report.

Are you facing a complex financial situation and unsure of your next steps? Our team of bankruptcy and insolvency experts offers a range of personalized services tailored to your specific needs. Do not hesitate to contact us for a free consultation.