How to File a Consumer Proposal | Its PROs and CONs
Consumers who are having difficulty meeting their debt obligations should consider a consumer proposal. A consumer proposal is a legal process that allows an individual to make a plan to repay creditors over three to five years, and avoid bankruptcy.
This legal agreement enables financially distressed consumers to pay off their unsecured debts. Moreover, it may be an alternative to bankruptcy for those who want to keep their assets.
Benefits of Consumer Proposal
The benefits of consumer proposals are that it offers debt relief, gives you time to repay your debts, and allows you to keep some of your assets.
This process can also help rebuild your credit rating and give you peace of mind knowing that there is a plan in place for repaying what you owe.
It can be used as an alternative to bankruptcy and it has many benefits that make it worth considering.
The main benefits are:
- Avoid the stigma of bankruptcy. This may have long-term impacts on your credit rating, employment prospects and ability to travel abroad
- You will avoid the risk of losing assets. Such as property or vehicles if they are not protected by a charge or lien
- Have more control over the timing and amount of payments. Which means you could potentially pay off debts sooner than you would with a bankruptcy
- It is cheaper than bankruptcy and can result in savings of thousands of dollars per year.
How to File a Consumer Proposal
In Ontario, a consumer proposal can be filed at the Office of the Superintendent of Bankruptcy or through an insolvency trustee.
In Ontario, when filing a consumer proposal, there are three main requirements:
- Must have at least $100 in debt or $5000 in equity (or both).
- You must be able to make monthly payments of at least $50 for five years.
- Able to make monthly payments of at least $150 for 12 months.
If you meet these requirements then you can file a consumer proposal in Ontario and get out of debt faster! Filing a consumer proposal in Ontario can help you get back on your feet, and eventually improve your credit score.
The length of the proposal is up to you, but it typically lasts between 18 months and three years. You must also provide financial information to the trustee during this process.
Based on the information you give, the trustee will draft a proposal with an offer that’s most likely to be accepted by your creditors.
Proposal Documents Preparation
Next, your trustee will be responsible for preparing and filing the Proposal Documents on your behalf. These documents include:
- A Statement of Affairs – This document lists all your assets, the estimated value of each, and the names, addresses of each creditor and the amount payable to each so they can see what they could hope to receive.
- A Statement of Income and Expense – This will show the amount of disposable income you currently have after deducting your necessary expenses. This will support the monthly payment amount you are proposing to pay to your creditors.
- An Assessment Certificate – To prove that your administrator gathered all the necessary information relating to your financial situation and that he has informed you regarding your rights and alternative options.
- A Consumer Proposal – the formal document summarizing your offer and terms of repayment of your unsecured debts to your creditors.
When the above documents are ready, the LIT will proceed with filing your consumer proposal with the Official Receiver. After that send a notice to each creditor for their consideration. Once the proposal is filed, the automatic stay of proceedings is activated.
This will give you legal protection from collection activities, including garnishments, lawsuits, and debt collector calls until the proposal is either accepted or rejected.
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Once your creditors are contacted they have 45 days to respond. If they do not respond, the proposal is deemed as accepted by the Official Receiver.
Creditors can request meetings with you before the 45 days is up, to attempt to reach an agreement with the majority of your creditors.
Creditors Acceptation or Rejection
If the creditors accept your proposal, you will make monthly payments to your trustee who will be responsible for distributing the payments to each creditor until the agreement is fulfilled. This means that you won’t have any more out-of-pocket expenses during this time period.
If the creditors reject your proposal, they will send out a notice of rejection letter with an explanation as to why they rejected it. It’s possible to renegotiate.
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The notice of rejection letter will give you the opportunity to respond to the decision and provide additional information that may have influenced their decision or clarify your proposal.
After receiving notification of rejection, you will have a few days to respond. You can do this by filling out a request for reconsideration form within the time frame specified.
Certificate of Full Performance
When you have made the final payment and completed all the conditions of the proposal. Your administrator or LIT will send a Certificate of Full Performance as well as other documents.
This may include a Statement of Receipts and Disbursements and a Notice of Taxation of the Administrator’s Accounts and the Discharge of the Administrator to you and the Official Receiver.
This will signify that the balance of your original debts is forgiven. The government then will notify the two main credit bureaus. Equifax and TransUnion about the end of your consumer proposal and the debts that were forgiven.
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A consumer proposal is one of the last ways to avoid bankruptcy. If your proposal is rejected by the majority of your creditors. The reason for the rejection may be that they deem your finances may not be stable enough to sustain a consumer proposal. If this is the case a bankruptcy filing may be more appropriate for your situation.
You are allowed a maximum of two missed payments once your consumer proposal is in force. If you fall three payments behind at any time, the proposal will be annulled.
At this point, the full amount of your original debt debt balances will be reinstated, and your creditors will again have the right to pursue collection efforts. If you miss two or more payments of your consumer proposal, you may have to file for bankruptcy as the last resort.
Contact us now to find out if a Consumer Proposal is right for you.