What are Consumer Proposals - Do they work?

A successul consumer proposal - one that creditors accept - usually has 5 basic requirements:

Duration: Monthly payments should be made for at least 3 years, and preferably for 4 years or more. The longest duration the law permits is 60 months. This is often viewed as a major advantage over debt management programs / debt pooling arrangements where the duration of payments is unknown and can easily extend to many years. We do not like to recommend proposals that are too long - who knows what the future holds?

Benefits: Creditors should receive a better financial recovery than if you were instead bankrupt. We will calculate this for you. It should be reasonable, although the amount depends on the circumstances. This return to creditors is enhanced by the fee calculation - administrators of proposals are almost always paid a lesser fee compared to the fee they would receive in bankruptcy proceedings. As the fee is taken from the monies you pay in, this means there is more money for creditors.

Payments: Your monthly payments should not be significantly less than the payment you would have to make from your surplus income if you were instead bankrupt. You can't lowball your offer. We will calculate recommended payments for you.

Cash Flow: Your proposed payments must fit in your monthly budget; your budget should show reasonable expenses; and there should not be a large budget surplus remaining.

Cause of financial problems: Occasionally, creditors will look to the cause of your problems. If you used their money to gamble or to gift to your overseas relatives then don't expect compassion.

The merits, or good things, about consumer proposals:

It is not a bankruptcy. It is for a person that is insolvent (“in over your head” financially).
It creates a stay of proceedings – unsecured creditors are legally required to stop bothering you. Garnishments stop.
The payment plan is whatever you offer and what creditors agree to. We will show you mathematically what makes sense.
You can pay it off early.
There will be two individual counselling sessions as well as optional monthly financial reporting. These will give you greater skills and you should establish better confidence regarding your financial future.
Unsecured debts to the Crown such as income taxes, GST, and MSP are all included in the proposal.
It provides a fresh start – your cash flow should be under control and you can start saving money!

Consumer proposals have consequences:

Creditors decide whether to accept it.
Some types of debts still must be paid back – those listed in section 178 (e.g. student loans, debts from fraud or embezzlement) that must be paid when the proposal is over, plus interest.
Co-borrowers and guarantors are still responsible to pay those “common” debts in full.
You must give us all the credit cards you still have, regardless whether there is any balance owing.
If you have a mortgage, then take a look at the mortgage document to determine whether the type of mortgage you have also secures your lines of credit, credit card, and overdraft with that lender.
The credit bureau report will include a reference to your consumer proposal. TransUnion will report this for the lesser of (a) 6 years after filing and (b) 3 years after completion. Equifax will report this for 3 years after completion.
The credit bureau sometimes reports information inaccurately and it might report a proposal as a bankruptcy until it is properly informed otherwise, when your proposal is completed.
A new student loan on a new educational program is not available until you complete your proposal.

Consumer proposals and income taxes:

All of your tax returns should be filed and up-to-date.
It is unreasonable to expect Canada Revenue Agency (CRA) to vote to accept your proposal if you have not been filing your tax returns on a regular basis.
Commencing with the 2010 calendar year (filed in 2011), all your income tax debts must be paid in full, on time.

Your disclosure:

Honesty is necessary to ensure the integrity of the consumer proposal process. When you sign your papers with us, you must tell us about:

All your assets, liabilities, and income.
All your assets sold or disposed in the last 12 months and what the monies were used for.
All your creditors to whom you made preferential payments in the last 12 months.
All gifts over $500 you made to friends and relatives when you knew you were insolvent.
All assets you sold or transferred in the last 5 years if you were insolvent when it occurred.

Assets include real estate, cash, bank accounts, online accounts (including gaming accounts), shares of public companies, shares of private companies, loans receivable from private companies, savings bonds, GICs, term deposits, automobiles, motorcycles, snowmobiles, furniture, appliances, computer equipment, cameras, collections, airline / travel / entertainment tickets, artifacts, domain names, accounts receivable, registered education savings plans, cash surrender value of life insurance policies, claims against other persons or insurance companies, retirement savings plans, artwork, timeshares, and entitlements to monies or assets. And there are more examples. All of these assets must be disclosed in the sworn statement of affairs.

Creditor Response

We draft your consumer proposal from our experience. It doesn’t have to be what we suggest – it can be whatever you want, within reason. But it has to be fair.
Before we mail out your proposal to your creditors, we prepare our independent report for your creditors, showing the advantages of the proposal compared to the bankruptcy alternative.
At the first counselling session scheduled for about 45 days into the your proposal, we will advise you of the creditors’ response and the next steps.
If the creditor response after 45 days is significantly negative, we will call a meeting of your creditors at which a vote would be taken. Although these meetings are not that common, when they do occur, creditors do not usually physically attend.
The majority of the dollars voted (in respect of unsecured claims) determines the result. Your attendance at any creditors’ meeting is very important because it may provide an opportunity for you to amend your proposal if it would otherwise be refused by creditors.

Default and Annulment

A proposal can end even if you wish to continue it. The proposal will end, and creditors will once again have the right to pursue you for payment, as the result of any of the following:

Creditors vote to refuse your proposal.
If, within 15 days after creditors accept your proposal, we are requested to apply to Court for the Court’s review of your proposal and the Court refuses to approve it.
If there are 3 months’ arrears in payments.
If 3 months have passed without an amount being paid.
If someone applies to Court and convinces the Court you are in default of what is required of you under your proposal or that fraud has occurred.
If 5 years pass and you have not completed the proposal.

Completion

When you have completed your proposal, we advise the two credit bureaus what happened and the bureaus should correct any inaccuracies in their records.
We issue a Certificate of Full Performance of Consumer Proposal stating you are released from all debts except secured debts and those summarized in section 178 of the Act.
You should obtain your credit report a few months after the proposal is completed to see if anything is being reported incorrectly.

Debts That Will Survive Your Proposal

In addition to secured debts, if you have any of the following types of debts under section 178 you should tell us:

A fine, penalty, or restitution order imposed by a Court, or any debt regarding bail.
Any Court-awarded damages in respect of bodily harm or death you caused.
Any obligation you have to pay spousal support or child support.
Any debt arising from your fraud or embezzlement.
Any debt from your fraudulent misrepresentation.
The dividend that a creditor would have received on any debt you have if you did not disclose that debt to us.
Any debt to student loans if the date we filed your proposal is less than 7 years after your study-end-date.
Interest owed in relation to the above.

If there are debts owing to a creditor in another country it can be complicated whether you will be free from that debt.

If you would like to try a consumer proposal, please contact us.