Canada consumer proposal: What is a consumer proposal in Toronto Canada?
If you're struggling to repay all of your debts, there is a way to get your life back under control and reduce your stress level. A Canada consumer proposal could be your answer. This FAQ guide will explain what this debt restructuring option is and how it could help you.
This debt settlement plan, which is administered under the Bankruptcy and Insolvency Act (Canada) (BIA), allows you to pay back part of your debt over a period of time. The benefit to you is that, once you finish paying back the portion you agreed to, all of your debt disappears.
Canada consumer proposal: Who can submit a consumer proposal?
In order to be eligible for this government-backed debt settlement plan, you must be insolvent and owe $250,000 or less to all of your creditors (excluding any secured creditors whose financial debts are secured by a lien against your personal residence, such as mortgages or lines of credit).
This is a great choice for people who:
- are employed;
- can budget their money to make the required monthly payments;
- want to avoid bankruptcy; and
- can't stand all the collection calls from the collection agencies anymore.
Canada consumer proposal: How to make a consumer proposal in Toronto
A licensed insolvency trustee (whose old name was bankruptcy trustee) will administer your consumer proposal. The licensed insolvency trustee is called the Canada consumer proposal administrator.
The licensed insolvency trustee will take care of submitting the required documents to the Office of the Superintendent of Bankruptcy (OSB). Your payment to unsecured creditors will automatically stop as of the date of your filing. You will also have stopped paying any secured creditors if you have decided to do so because you can't afford to keep the assets.
If you file a Canada consumer proposal, any legal action your unsecured creditors have started against you in the Greater Toronto Area will be stopped. This includes if a creditor already has a judgment against you or is issuing wage garnishees. This will give you some relief and the time to work with the Trustee in creating your proposal document.
The licensed insolvency trustee will present your creditors with your proposal, a list of your assets and liabilities, as well as the reasons for your financial difficulties.
Your creditors will have 45 days to decide whether to accept or reject the proposal. They can do this either before or at the meeting of creditors if one is required.
Canada consumer proposal: Why would my creditors vote in favour of my consumer proposal?
To get a Canada consumer proposal approved, a majority of your unsecured creditors who have filed a proof of claim need to authorize it by the dollar value of their unsecured debts. The BIA says that any creditor who has filed a proof of claim and does not vote is considered as a vote in favour.
If creditors holding 25% or more of the total dollar amount of submitted claims request a meeting, or if the OSB does, then the Administrator will hold one. If one is not requested, or the minimum 25% threshold is not met, the proposal is considered accepted by the creditors.
There is not a lot to understand. As I mentioned, a majority by dollar value tells the tale. There is either a majority to accept or refuse your consumer proposal. Why would your unsecured creditors agree to your consumer proposal? Simple. A licensed insolvency trustee who is administering your consumer proposal has demonstrated that it is a better option for your creditors than bankruptcy.
If your proposal is accepted, then either the OSB or a creditor has 15 days to ask for it to be put on the Court docket to seek Court approval. If no such demand is made, the proposal will be considered to have been approved by the Court.
If your creditors accept your Canada consumer proposal
A proposal that is accepted by your creditors and (deemed) Court-approved is a legally binding agreement. This means that you have committed to making regular payments to your licensed insolvency trustee for up to a maximum of 60 months. As long as you make all the required payments on time, and attend the two credit counselling sessions, you will fulfil your obligations under the proposal.
If you attend two mandatory credit counselling courses run by the licensed insolvency trustee and make all the required payments, then you have successfully avoided bankruptcy. You will have discharged the balance of your debt through the Canada consumer proposal. This is the best alternative for those who want to avoid bankruptcy and still get all their debts discharged.
Is it possible to pay off a Canada consumer proposal early?
A Canada consumer proposal is an interest-free loan that is significantly less than what you originally owed your unsecured creditors. Therefore, it may be beneficial to you not to pay it off early and to receive the full benefit of the proposal.
We structure all of our proposals to give you flexibility; you can take the full 5 years if you need to. If you are able to pay it off early and you have good reasons for wanting to do so, then you can.
We won't have to go back to the creditors or the court to make any timeline changes if we word it this way. It's all included. Other loans usually have a penalty for paying them off early, but this Canada consumer proposal loan has no penalty for doing so.
If your Canada consumer proposal is rejected
If your proposal is rejected, you have a few options:
- see if you can improve on your Canada consumer proposal offer to your creditors;
- look into other ways to improve your financial situation; or
- file for personal bankruptcy.
You will have gotten rid of all of your debt and avoided having to declare bankruptcy if you finish making all the payments you promised and attend the two financial counselling sessions.
Canada consumer proposal: A Canada consumer proposal will affect your credit score
This type of proposal being filed will initially give someone the lowest credit rating.
The information affecting your credit report is typically removed after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you have completed all of your payments and received your certificate of full performance.
After you finish your Canada consumer proposal, you can start repairing your credit. A way to show you can be responsible with credit is by making payments on time and having a good credit history from then on. With effort, these positive changes to your credit history will improve your credit score.
Canada consumer proposal: Are consumer proposals a good idea?
You were in danger of losing your assets and income from your job because of financial difficulties. Maybe you even had your wages garnished. You needed help with your debt, so you chose the only government-approved debt settlement plan in Canada. You were successful and completed the plan, which resulted in you being debt-free.
No doubt about it, that makes it worth it.
Canada consumer proposal: Benefits of filing a Canada consumer proposal instead of bankruptcy
There are many benefits of submitting this proposal, for example:
- you eliminate your unsecured debt by paying only a fraction of what you owe;
- you can keep your home, vehicle, and other assets as long as you can afford to make any mortgage payments or other loan payments against them; and
- a successful consumer proposal lets you stay clear of bankruptcy.
Canada consumer proposal: Disadvantages to filing a Canada consumer proposal
Before filing a proposal, you may want to consider some potential drawbacks:
- after you complete your proposal, it is unlikely that you will be able to borrow money for a few years;
- your credit score will be negatively affected but not as much as someone who files for bankruptcy; and
- you will have to give up an asset with a loan secured against it if you cannot afford to keep up the payments.
A Canada consumer proposal has to be a better outcome for your creditors than if you filed for bankruptcy. You will make an offer that hopefully will receive the required creditor approval. If they don't agree, you will have to go back to the drawing board to see if you can sweeten your offer.
CRA income tax debt can be negotiated and paid back over time through a Canada consumer proposal
It is important to take care of any outstanding tax debt owed to the Canada Revenue Agency (CRA) as soon as possible. The CRA is responsible for collecting income tax and GST/HST owed by Canadians. A successful consumer proposal will take care of CRA tax debt also.
I've helped a lot of people with CRA income tax debt - like those who:
- were a Director of a company who became personally liable for unremitted HST or source deductions;
- filed their income tax returns and paid their income tax every year, but are now faced with a large income tax reassessment that they cannot afford to pay;
- did not keep up with their tax filings, and once caught up, realize they owe a large amount they cannot afford.
For all these people, a consumer proposal Toronto was a better alternative for both them and their creditors than a bankruptcy. If you fall into one of these categories, then I can help you eliminate that debt.
Debt consolidation vs. Canada consumer proposal: What's the difference?
This bankruptcy trustee in Toronto blog has already explained what a consumer proposal in Toronto Canada is and how it can help you.
A consolidation loan is a type of financing that allows you to consolidate multiple financial obligations and pay them off with one loan that has a lower interest rate. This can help you to save money due to the lower interest rate. Your monthly payment on the one loan is now more manageable. You will need to have a good credit score and show that you have the income and assets to repay the loan to qualify.
If you're struggling with financial obligations, consolidating your debts may help you get your finances in order. However, a consumer proposal may be a better option.
What will happen if I can't make payments on my Canada consumer proposal?
If you adhere to the terms you agreed to, your creditors and collections agencies will not be able to harass you. If you default on your proposal or miss 3 months of payments, the proposal becomes void and you will not be able to file another one.
When a consumer proposal is annulled, this then leaves only a bankruptcy filing as an option.
Canada consumer proposal: What are consumer proposals in Toronto and how popular are they?
There is only one government-approved debt repayment program known as a consumer proposal. This program has become increasingly popular in recent years due to its ability to help those struggling to meet their financial obligations eliminate their debt. If you are looking for a way out of debt, a consumer proposal may be the right option for you.
How popular is a Canada consumer proposal? The OSB recently reported that across Canada, the proportion of proposals in consumer insolvencies increased to 70.2% of all consumer insolvency filings during the 12-month period ending February 28, 2022. So, consumer proposal filings in Toronto and the rest of Canada represent a significant proportion of all personal insolvency filings.
As I've said before, you can only do this if you're insolvent and your outstanding debts to creditors are less than the maximum allowed for a consumer proposal.
For people who owe more than the consumer proposal limit, we use another section of the BIA that allows them to restructure their debt.
How much does a Canada consumer proposal cost?
Weighing the costs is the best way to see if this choice is best for you. There are two different types of costs to take into account: the amount you need to offer to get creditor approval and the professional fees that you will be responsible for.
During your free consultation with the licensed insolvency trustee, you will learn about the different options available to you and what your creditors could expect from your bankruptcy. The licensed insolvency trustee will explain what he or she thinks would be a good debt reduction strategy for you to use.
As specified in the Canada consumer proposal laws, the professional fee and associated costs for the licensed insolvency trustee can be drawn from the total amount of the proposal fund that you will pay back over time. As you have read in this blog, the amount you need to offer your creditors is based on what they can reasonably expect to receive if you filed bankruptcy.
In a successful restructuring, the professional fee and disbursements are taken from the amount the creditors would otherwise receive. Therefore, your creditors are paying the cost, not you.
Canada consumer proposal: What will happen after a consumer proposal?
After you have completed your proposal, including the credit counselling sessions, you have hopefully learned how to budget properly. You are now better equipped to make wiser credit decisions and understand that you cannot spend more than you earn, after taking into account the income tax you will pay on your earnings.
There are now ways for you to start rebuilding your credit after completing a Canada consumer proposal:
- Get a secured credit card. You want to acquire the one where you need to make a cash down payment. The size of the deposit determines your credit line. Paying your credit card balance completely monthly and not allowing the bank card company to access your down payment will certainly be reported to Equifax Canada and TransUnion Canada which in turn boosts your credit score.
- If you are able to, take out a small RRSP loan as soon as you receive your certificate of full performance. Budget for 12 months to pay off the loan. If you make your loan payments on time, it will be reported and this will help improve your credit score. You will also be increasing your retirement savings.
You don't want to get into debt problems again. Be careful with credit.
Canada consumer proposal: Avoid being ripped off
It's no fun to get cheated, especially when it comes to choosing from available debt management strategies or debt relief options. To avoid being taken advantage of, follow these simple steps:
Before deciding on which debt settlement company to go with, be sure to do your research. This means reading online reviews and talking to people who have gone through a restructuring proposal, to get as much information as possible.
There are lots of businesses that will certainly try to persuade you that they can remove your debts without any insolvency process. They bill you in advance. A licensed insolvency trustee never bills you in advance and will at no cost what these companies will charge you for. Remember the fact that just a Trustee is lawfully permitted to offer the consumer proposal solution.
An upfront fee is a sign that the debt management firm is not a licensed insolvency trustee. I provide free initial consultations and it is the creditors who pay the professional fee in a successful restructuring. Always remember to check that you are dealing with a licensed trustee before moving forward.
If you need assistance with a Canada consumer proposal, please do not hesitate to contact us. We are here to help you
I hope you found our Canada consumer proposal Blog helpful. A successful proposal can eliminate your unsecured debt and is a legally binding agreement with your creditors that can only be filed through a licensed insolvency trustee.
We know how stressed and anxious you feel because you can't fix your financial situation on your own. Fortunately, we're a government-licensed insolvency professional firm and we can help you get your finances back on track.
As government-licensed and accredited professionals, trustees are the only ones who can provide insolvency advice and BIA debt relief solutions. A consumer proposal is a federal government-licensed debt settlement approach that can eliminate your debt. We can help you choose what is right for you.
If you're struggling with money problems, call the Bankruptcy Trustee In Toronto Team today. We'll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.
If your debt is overwhelming you, the Bankruptcy Trustee in Toronto Team can help. We assist people and businesses restructure to avoid filing for bankruptcy. Everyone's story is different, so we offer a no-cost assessment to help you find your best solution. Tell us your story today.