September 5, 2017

This blog tells you how consumer proposals work, from process to cost and outcome.

The process of filing a consumer proposal begins with finding a Licensed Insolvency Trustee (formerly known as a Trustee in Bankruptcy) to help you.  Only a Licensed Trustee can file a proposal with the Federal Government.


You can find a Trustee by following this link – we suggest that you use a trustee who is as local to your town or city as possible.  The reason for this is that as the file goes along they are generally easier to reach, in person.  Some people prefer to find a trustee through a trustee referral service, but such services often provide misleading information and charge exorbitant fees.


After meeting with your trustee, and reviewing your options to determine that a proposal is the correct solution, you will be required to complete an application containing detailed information about your financial situation.  It is best that you bring along recent statements for debts and investments including mortgage and car loan documents.  Some of this information will be copied for the Trustee’s file.  This information will be used to prepare the forms required to be filed with the Office of the Superintendent of Bankruptcy, who oversees the process and regulates the Trustee through Industry Canada.


The trustee will help you to determine how much you will need to offer your creditors in order for them to seriously consider your offer.  There is no hard and fast formula for the amount you will be required to pay it can vary from less than one cent on the dollar to 100 cents on the dollar of the amounts owing.  If anyone tells you it must be a set percentage find another Trustee.  As a simple rule the amount offered under a proposal must be at least a little better than the amount the creditors would receive from a bankruptcy filing.


Once your information has been set up and the proper forms prepared you will be asked to review the forms for accuracy and sign them with an affirmation that the information is true to the best of your knowledge and belief.  Certain forms will then be filed to the Office of the Superintendent of Bankruptcy and some sent to your creditors for their review and vote on the proposal.


Your creditors will have forty-five days to vote on the proposal.  They may vote (yes) in favour or (no) against or they may abstain from voting.  Those who do not vote are not counted to determine the outcome.  The proposal will pass if 50% of the creditors vote in favour of acceptance, if no creditors vote then the proposal will be deemed to have passed after the expiration of forty-five days.  The initial forty-five day period is followed by a further fifteen days to allow for any creditors to apply to court for a review of the proposal, it is exceedingly rare that this happens, after the fifteen days have expired the proposal is deemed to be court approved and is officially in place.


Unless the terms of your proposal allow otherwise your proposal will fall into default after any three months of payments are in arrears.  So you must start making payments from the time you file the proposal until its completion.  Other terms could include such things as income reporting and remitting or sale of property.  The terms of a proposal can be as creative as you and the Trustee want to get.  Some proposals call for payments that go up and down based on income levels throughout the proposal.


During the proposal you must attend at two credit counselling sessions with a licensed credit counsellor.  The idea is to help you to learn about money and credit management so that you may avoid getting into a pickle again in the future.


A proposal is only completed after all payments and all other terms have been fulfilled.  Until the last term is met or payment made the proposal could become a nullity and the debtor could find themselves facing the full amount of the original debt plus accrued interest and seeking alternative solutions.  Some people find that the relief they get from filing the proposal provides enough comfort that they stop making their proposal payments a priority.


After the proposal is completed you will find that it will take anywhere from 1-2 years to start to see credit becoming available again.  However, you will have a negative credit report for three years following completion of your proposal.  So if your proposal is for five years, the longest term possible, then your credit report will be impacted for eight years.  A proposal has exactly the same effect on a credit report as a bankruptcy because it is enabled under the same legislation for more information on Credit Bureau purge rules follow this link.