519-646-2222Consumer Proposals – and social challenges.
Consumer proposals are legal arrangements between debtors and creditors that change how debts are repaid. Typically, a consumer proposal includes all debts and reduces both the principal amount owed and the monthly payment terms.
Consumer proposals carry no interest, and the Licensed Insolvency Trustee’s (LIT’s) fees are not added to the payment terms; instead, they are deducted from the amount payable to the creditors. Debtors under consumer proposals may keep all of their property, or they can choose to return secured assets to creditors as part of the debt restructuring.
Most debts included in a consumer proposal are credit cards, lines of credit, and tax debts. However, they can also include mortgage debt remaining after a power of sale or the balance of a car loan after the vehicle has been returned to the lender.
Payments must be manageable for the debtor while also being an acceptable compromise for the creditors. The Licensed Insolvency Trustee’s role is one of mediation: the LIT administers the proposal and helps both parties strike the right balance in the repayment terms.
Consumer proposals, like other insolvency options, are essentially short-term solutions. They provide debtors with temporary relief from their obligations and offer the possibility of a financial “fresh start.” But what does that really mean?
The harsh reality of living in Canada is a significant lack of opportunity and a systemic failure to adequately address issues of economic growth and social development. We have become trapped in an unavoidable cycle of debt.
Unfortunately, for many consumers, our laws offer only temporary assistance, with no meaningful pathways to long-term success. For most, the main goal is to “get my credit back,” not to “get out of debt and stay out of debt.”
That is exactly where debtors encounter another legal problem: while nothing prevents banks and other lenders from extending credit—before the first proposal is completed—the debtor is legally prohibited from filing a second (layered) proposal to address new debt incurred before completing the first.
When considering these challenges, it is clear that the LIT must focus on more than simply achieving the highest possible return for the creditor. They must also be mindful of the social consequences of failing to strike the right balance. After all, the LIT is not simply a collector.