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For many people, a consumer proposal is an effective option for settling debts when you are simply unable to repay everything in full. Consumer proposals have grown significantly in popularity in recent years as more people become aware of consumer proposals as a viable alternative to bankruptcy in Canada. Even with this popularity however, there is still a lot of confusion and misinformation.
What Is A Consumer Proposal?
A consumer proposal is a means through which you can legally offer a payment arrangement with your creditors to settle your debt for less than you owe. It can only be filed with a Trustee in Bankruptcy who acts as the consumer proposal administrator.
Consumer Proposal Settles Unsecured Debts
A consumer proposal can only settle unsecured debts. A consumer proposal does not deal with secured debts. The most common examples of secured debts are mortgages and car loans. If you default on your car or mortgage payments, the secured creditor has the right to repossess the asset.
An unsecured creditor has no rights to your assets without a court order. The most common example is a credit card. Lines of credit are often unsecured, but are sometimes secured to a house. Income taxes are also unsecured, unless the Canada Revenue Agency has proceeded to register a lien against your house or other assets.
As long as the money you owe is an unsecured debt, it is included in a consumer proposal and you can make a deal to settle those debts.
Proposal Cannot Settle Secured Debts
A consumer proposal cannot be used as a means to lower the amount owing on your house or car since those are secured debts. If you want to keep the house or car, you are required to continue the payments based on the agreement already in place.
Many people find that dealing with their unsecured debts frees up enough money to properly manage the secured debts and other living expenses. If you still can’t afford to continue with your mortgage or car payments, you do have the option to sell the asset or voluntarily surrender it to the secured creditor. If the secured creditor is unable to sell the house or car for the amount owing on the mortgage or car loan, the deficiency becomes an unsecured debt and can be included in a consumer proposal.
It’s also important to know that you cannot voluntarily exclude an unsecured creditor from your proposal.
Debts Excluded By Bankruptcy Law
Another consideration is that the Bankruptcy & Insolvency Act specifies certain unsecured debts that cannot be settled by a consumer proposal. The most common examples are family support obligations and government student loans where you have been out of school for less than seven years.
Consumer Proposals Do Not Settle Co-signer Obligations
A final consideration is that a consumer proposal does not remove the obligation of a co-signer or joint party. A common example is a parent who co-signs a bank loan for their child. In filing a consumer proposal, the original borrower’s obligation is settled. However, the bank is not stopped from going after the parent co-signer for the full amount.
Book A Free Consultation To Discuss Your Debts
Though it is not the same as personal bankruptcy, a consumer proposal is governed by the provisions of the Bankruptcy & Insolvency Act. Keep in mind that a consumer proposal can only be filed with a trustee licensed by the Federal government. If you are not talking to a trustee, you should ask for clarification about the authority of the “proposal” or program being discussed.
If you are considering filing a consumer proposal, contact an experienced local trustee for a free consultation.
I filed a consumer proposal and now every little bit of credit I am trying to apply for says it is just the same as doing a bankruptcy. So why should anyone make any effort in paying their creditors back when your credit will be just as bad as a bankruptcy? Why not just claim bankruptcy?
If you filed the proposal because you were told “it looks better on your credit report” then you may have been mislead. A proposal is reported as an R7, a bankruptcy is an R9, but frankly, most people don’t know the difference. In addition, if a debt was already being reported as written off or in collection, your creditors may not have upgraded the report to show the proposal. It can be a mess. The best thing to do to start is to request a current copy of your credit bureau report so you can see exactly what is being reported. Then if you have questions or concerns go and speak to your trustee. A word of warning – the credit bureau reports what your creditors tell them to report – if something is being reported incorrectly it can be a real pain to get it fixed… Sorry for the bad news.
July 21, 2015
Dear Sir,
I have filed my bankruptcy on 2008, after the first court hearing due to some paperwork I file monthly was mislead by my trustee. Court didn’t release me, then I was requested to file all my paperwork again after 7 years period and finally get my second hearing this month. What will I expect from this hearing, Is there a certain time frame my bankruptcy can be extended to? Thanks.
There is no statute of limitations on bankruptcy – you remain in bankruptcy until you complete all the required duties. Unfortunately, any time you have to appear in Court for a bankruptcy you run the risk that the Court will ask you to do something else in order to be discharged (released). If you have done everything that is required under the law then you may be released in Court that day. It is far more common for people to still have something left to do in which case the Court will not release you until everything is done.
I filed a consumer proposal last year (2016). One of my creditors was CRA. I had set up monthly withdrawals to pay down my debt with them. Those were canceled when the proposal was filed. The trustee sent me a letter certifying that ALL of my creditors accepted the proposal. CRA was on the list of creditors who accepted.
Now I’m getting ready to prepare my 2016 tax return. I logged in to CRA’s website and there was an error message on the page that shows my statement of account with them. I phoned them and was given the runaround between two departments. I filed a written complaint and I just received a letter with my statement of account. It looks like CRA is acting as if the proposal was never filed. Since the proposal was accepted, they have been adding interest and a “payment declined” fee when the auto debits were canceled. I now owe them more money than when the proposal was filed! I’m now concerned that they will take my tax refund, as well as a portion of the money I’m paying each month for the proposal (which does not appear on the account statement).
Another concern is the trustee. I tried calling two people at their company, neither returned my calls. One was the actual trustee assigned to my file. Since she wouldn’t return my calls I emailed her with my concerns. Her response was to tell me to call CRA, when I had told her I had already spoken with them and they refused to help. CRA isn’t taking calls now, I get a recorded message stating they are too busy, I’ve tried many times now. Isn’t it the trustee’s job to represent a debtor to their creditors? Shouldn’t she have a contact at CRA who deals with bankruptcy trustees? Why am I paying this trustee when they refuse to answer basic questions like “why is CRA acting like I never filed a proposal” or “can they take my refund or not?” What recourse do I have to file a complaint against them? Can I switch to a different trustee?
Hi Patti. If your proposal was accepted, than all tax debt up to the end of 2015 is included. CRA should have record of this in their system (although they are slow so it takes time). I would set aside some time to wait on hold on the phone until you can confirm this with CRA.
As for your trustee, not answering your phone calls is unacceptable. You can make a complaint directly with the Office of the Superintendent of Bankruptcy, the regulator of all trustees.