If you have more debt than you can handle, but don’t want to go bankrupt, a consumer proposal may be a great solution.
What is a Consumer Proposal?
A consumer proposal is a formal, legally binding deal you make with your creditors. It is a formal debt settlement program that is governed by the Bankruptcy & Insolvency Act. This provides a legal set of rules that everyone has to follow to ensure that the process if fair and trustworthy for all parties. A consumer proposal in Ontario can only be filed by a licensed Ontario bankruptcy trustee acting as a Consumer Proposal Administrator.
For example, if you have $50,000 in credit card debts, bank loans, and taxes, and can’t afford to pay the $1,500 per month in minimum payments, it may be possible to file a consumer proposal where you pay $500 per month over a period of up to five years, and at the end of the proposal the creditors write off the balance owing. You pay no further interest, and you end up with one manageable payment each month.
Some important things to know about a consumer proposal:
- you can settle your debt for less than you owe, often as low as 35%;
- it is binding on all unsecured creditors
- wage garnishments and other legal actions stop
- you make one monthly payment
- how much you pay depends on what you own, how much you make and what your creditors could receive if you filed for bankruptcy
- you keep your assets like your house, car and investments
- you avoid filing bankruptcy
Who qualifies for a consumer proposal in Ontario?
To qualify for a consumer proposal you must make enough income to be able to make your monthly payments for the length of your proposal and your unsecured debts, excluding your mortgage, must be less than $250,000. If your debts are higher, you can still negotiate a settlement with your creditors through a Division I proposal.
Should I file a consumer proposal, or go bankrupt?
This is a difficult question, and will depend on your individual circumstances. In general, a consumer proposal is a better alternative to bankruptcy if:
- you have assets that you would lose in a bankruptcy (such as a house or a car),
- you would be required to make significant surplus income payments in a bankruptcy, and
- you have the income to support at least partial payments to your creditors.
However, if your future income is uncertain (because you expect to be laid off or have your hours reduced), or if you don’t own any assets, personal bankruptcy may be the best option.
Why would my creditors accept a consumer proposal for less than the full amount owing?
Your creditors may be willing to accept the consumer proposal because it’s a better option than having you file bankruptcy in Ontario. If you declared bankruptcy your creditors may receive less money. It’s a great solution for you because now you only have to worry about one, affordable monthly payment.
In most cases a reasonable proposal will be accepted by your creditors. Creditors want to recover as much as they can, but they also know that if they say no to your proposal, you may go bankrupt.
Of course every situation is different, and the exact amount you would be required to offer in a consumer proposal will depend on your personal situation.
I think I should file a consumer proposal; what’s my next step?
If you are experiencing financial difficulty, we suggest you contact a licensed Ontario bankruptcy trustee to discuss whether a consumer proposal is an alternative to bankruptcy in your situation.
Our consumer proposal administrators and bankruptcy trustees will assess your situation and help you decide which option is right for you, and your family. The first meeting is free, and may help you to resolve your problems before they get out of hand.
If you think you’re in trouble – contact a proposal administrator today.