A consumer proposal is an intriguing and increasingly popular way for consumers to deal with their debts. This is a formal legal process governed by the Canadian Bankruptcy & Insolvency Act and administered by Consumer Proposal Administrator who is also a licensed trustee in bankruptcy.
Essentially, the concept of a consumer proposal is to offer to repay a portion of your unsecured debts (including credit cards, lines of credit, overdraft, income taxes, etc.). If your creditors agree to the offer, you are not required to repay the full amount of the debt. The acceptance process is commonly referred to as “voting.”
So how does the voting work?
Here are some key things to know about the voting process in a proposal:
- The creditors have 45 days to respond to the trustee’s office to indicate whether or not they are in favour of the proposal.
- If a creditor takes longer than 45 days, it’s too late.
- Each creditor gets one vote for every dollar of debt they are owed.
- The proposal is legally binding on all creditors if the majority of the votes say yes.
If a significant creditor says no, they will usually make a counter offer. When the proposal is not accepted after the first 45 days (because a significant creditor said no), there is an additional three weeks to negotiate with the creditors.
The good news is most consumer proposals are accepted either as filed or after some negotiation. You might ask why your creditors would voluntarily agree to let you pay something less than the full amount of the debt. The answer is that they will normally agree if they see they are going more money back compared to if you filed a personal bankruptcy (as a last resort).
There is a variety of considerations that go into determining a fair or reasonable amount to offer in a consumer proposal. It’s best to talk to a bankruptcy trustee about your particular situation. Most proposals are set up to require a monthly payment over a maximum period of five years. However, it can be for a shorter time period. It can also involve making a one-time lump sum payment if you have funds available from the voluntary sale of your own possessions or from a friend or family member. You can also pay off a proposal early.
Also keep in mind that a consumer proposal is not intended as an easy way to get out of repaying all of your debts. It is intended for people who are unable to repay their debts, but prefer not to file personal bankruptcy.
A bankruptcy trustee is the best person to talk to if you are considering filing a consumer proposal. No-one else can file a proposal for you, only a licensed trustee. Get a free confidential consultation about your situation, and see if a proposal can help you eliminate your debt sooner while avoiding bankruptcy.