Consumer Proposal
Toronto Consumer Proposals | FAQs
A Consumer Proposal is a formal legal process that can only be administered by a Licensed Insolvency Trustee (LIT). This process is regulated by the federal government. In a Consumer Proposal, you offer to pay your creditors a portion of what is owed to them either as a lump sum or via periodic payments. A Consumer Proposal may enable you to pay up to 70% less than you owe. Once you make the payments, you are legally released from all the debts included in the proposal.
A Consumer Proposal is a formal legal proceeding that protects you from your creditors and erases your debt. While protected, it allows you to negotiate a settlement with your creditors for less than you owe with the help of a Licensed Insolvency Trustee. The vast majority of our proposals are accepted without negotiation, however if the creditors are unhappy with your initial proposal they may ask for more money. If this happens your trustee will assist you in negotiating with them. Steve Welker and Company is successful in negotiating more than 99% of its Consumer Proposals.
A Consumer Proposal allows you to spread out your settlement over sixty (60) interest free monthly payments, but you can pay off your proposal as quickly as you like.
Your debt is consolidated into a single monthly interest free payment, and no money is required upfront..
A Consumer Proposal never affects your assets and protects you from your creditors so that you can focus on balancing your budget and completing your proposal.
1. Consultation: Becoming debt-free begins with a free, no-obligation initial consultation with a Licensed Insolvency Trustee. The Trustee will review your situation and explain your options.
2. Determine the offer: The Trustee will work with you to determine the amount you offer to your creditors and the amount of your proposed monthly payments.
3. Preparing and Filing: The Trustee will complete the necessary forms and file them with the federal government. Once they are filed, you benefit from a “stay of proceedings,” which means your creditors can no longer take legal action against you (such as wage garnishments) or pursue collection.
4. Notification: Your creditors will be notified of the proposal and have 45 days to vote on it.
5. Vote: If creditors who possess more than 50% of your proven debt approve your proposal, all creditors are bound by it, and the proposal moves forward.
- If creditors possessing more than 50% of your proven debt reject your proposal, the Trustee will help you negotiate. You never have to deal with your creditors directly.
- You are protected from collection efforts and legal action during the voting process.
6. Court Approval: Deemed Court approval is granted unless a creditor objects within 15 days after your proposal is accepted by your creditors. Creditors only object in rare cases. You will only be required to appear in court in the unlikely event that a creditor or the Office of the Superintendent of Bankruptcy has requested that the Proposal Administrator seek court approval.
7. Credit Counselling: You’ll attend two free credit counselling sessions with a licensed credit counsellor registered with Industry Canada. Steve Welker and Company employs accredited counsellors, so you won’t be referred to another organization or agency.
8. Make Proposal Payments: You’ll make payments to the Trustee as agreed-upon during your initial consultation. The Trustee will distribute those funds to your creditors once every 12 months.
9. Completion: You’ll receive a certificate of completion after making all payments to the Trustee and fulfilling your duties. You can then focus on rebuilding your credit and enjoying your new debt-free life.
10. Rebuild your credit: You can begin the process of rebuilding your credit rating after the proposal is complete. This is often done by obtaining a secured credit card that can be used to borrow responsibly and improve your credit history.
Licensed Insolvency Trustees (Trustees) are the only debt professionals that are licensed and regulated by the federal government to administer a Consumer Proposal or Bankruptcy. Trustees provide advice and services to those who have debt problems to help them make informed choices to resolve their financial difficulties.
Trustees are not lawyers. In the U.S.A Bankruptcy Attorneys administer insolvency proceedings while in Canada Trustees provide similar services.
Trustees cannot do what lawyers do, and lawyers cannot do what Trustees do.
Trustees do not represent you. Trustees are impartial officers of the court who have responsibilities to both debtors and creditors. Think of Trustees like referees. They don’t cheer for either team, but ensure that everyone follows the rules.
Each Consumer Proposal is different. Proposal payments can be stretched over as many as 60 months, and the payment schedule is fixed regardless of what you earn. You can pay off your proposal earlier if you can, and there is no penalty for doing so.
There is no charge for the initial consultation with the Licensed Insolvency Trustee, and there are no up-front fees for filing a proposal. Trustee fees are regulated by the federal government and included in the monthly Consumer Proposal payments. Trustees must charge fees as outlined in the General Rules of the federal Bankruptcy and Insolvency Act.
Both an assignment in Bankruptcy and Consumer Proposal are legal options to erase your debt.
Both processes must be administered by a Licensed Insolvency Trustee, and both processes are governed by the Bankruptcy and Insolvency Act (BIA). However, the processes have many differences.
In a Consumer Proposal, you offer to repay a percentage of what you owe and are legally released from the remaining debts included in the proposal once the process is complete. In a Bankruptcy, what you pay is based upon your income and assets.
- Consumer Proposal vs Bankruptcy: Your Assets
- Those who file for Bankruptcy may lose certain assets. All non-exempt assets are either surrendered to the Trustee or repurchased by the bankrupt.
- Filing a Consumer Proposal allows you to keep all your assets or belongings. You do not lose any assets.
- Consumer Proposal vs Bankruptcy: Your Income
- If your income exceeds a certain level during the bankruptcy process, you must provide your creditors a portion. These are called “Surplus Income Payments.”
- Surplus Income is not calculated in a Consumer Proposal. Your payment schedule is fixed regardless of what you earn.
- Consumer Proposal vs Bankruptcy: Length of Process
- The bankruptcy process lasts between 9-36 months, depending on your income and whether or not you’ve filed for bankruptcy in the past.
- A Consumer Proposal can last as long as five (5) years or sixty (60) months. A longer period results in the lowest monthly payment possible, but you can always pay off your proposal as soon as you’d like without any penalty.
- Consumer Proposal vs Bankruptcy: Creditor Approval
- In a bankruptcy, approval by your creditors is not required. You are bankrupt after signing the papers, whether your creditors like it or not.
- A Consumer Proposal will be accepted unless creditors representing 50% of the proven unsecured claims vote to reject it. If your initial proposal is rejected, you can work with the Trustee to amend it in hopes of changing your creditors’ minds. If your Consumer Proposal is rejected, you are not automatically deemed bankrupt. Steve Welker and Company is successful in negotiating proposals 99.9% of the time.
- Consumer Proposal vs Bankruptcy: Credit Rating
- Declaring bankruptcy results in an R9 credit rating for 7 years after you complete the 9-21 month bankruptcy process as a first-time bankrupt. As a second-time bankrupt, it lasts for 14 years after completing the 24-36 month process.
- A Consumer Proposal results in an R7 credit rating for 3 years after you complete your proposal.
- Consumer Proposal vs Bankruptcy: Cost
- Fees for both processes are regulated and outlined in the federal Bankruptcy and Insolvency Act.
- Our minimum fee for a bankruptcy is $1,800 or $200 x 9 months. Your payment in a bankruptcy will increase if you decide to keep non-exempt assets or if you earn surplus income.
- As a rule of thumb, your payments in a Consumer Proposal will be 30% of your unsecured debt spread over 60 months, assuming that this amount is higher than your creditors would receive if you declared Bankruptcy. However, each proposal is unique. Proposal payments can vary significantly and must be high enough to earn the support of at least 50% of your creditors.
- Your proposal payments do not change, no matter how much you earn. There are no “surplus income payments” with a Consumer Proposal, and you do not lose any assets.
- Consumer Proposal vs Bankruptcy: Income Tax and HST Refunds
- If you file for Bankruptcy, income tax refunds generated in the year of your Bankruptcy or years before your Bankruptcy will be sent to the Trustee by the Canada Revenue Agency for the general benefit of your creditors. Refunds generated in tax years after the year of your Bankruptcy are not taken. HST refunds are also seized but are refunded if you make the required payments.
- You keep all income tax and HST refunds when filing a Consumer Proposal.
A Consumer Proposal allows you to pay less than you owe, up to 70% less, depending on your situation. This allows you to eliminate your debt even if you are not able to pay in full.
In addition, your debts are consolidated, interest stops, and you are protected from your creditors during the Consumer Proposal process.
Lastly, none of your assets are affected by a consumer proposal, including children’s educational savings (RESP), vehicles, and even your home
If accepted, a Consumer Proposal allows you to pay a percentage of the debt you owe, either in monthly payments or in a lump sum. You could have your debt reduced by up to 70%.
When a Consumer Proposal is filed, calls from creditors and collection agencies must stop immediately. All communication with your creditors will be handled by the Licensed Insolvency Trustee administering your Consumer Proposal.
Interest stops accruing during a Consumer Proposal. Once the proposal is accepted, your monthly payments do not change.
Yes, once the Trustee files the proposal, you benefit from a “stay of proceedings.” This prevents creditors from continuing or commencing collection action against you or, garnisheeing your wages. This protection from your creditors protects your income.
All debt relief options have potential disadvantages.
The most significant disadvantage to filing a Consumer Proposal is that it negatively affects your credit rating. Once the proposal is filed, both credit bureaus in Canada will disclose your proposal in a footnote at the end of your credit report. This will remain in your credit report for 3 years after you make your last proposal payment. Having a Consumer Proposal noted on your credit report can make it more challenging to get loans.
Debts settled through a Consumer Proposal are coded R7 on your credit report, which means that they have been settled through a payment arrangement. Debt management plans result in your debts being coded in the same way.
Consumer proposal payments are calculated based on your unique financial situation. Your offer is primarily driven by 2 main factors: What you own and what you earn.
The more you own and earn, the more you have to propose to pay your creditors. When individuals own and earn very little, we recommend offering at least 30% of the outstanding unsecured debt. Exceptional circumstances can justify offers as low as 25%, but we find that creditors typically reject proposals that offer less than 30% repayment without specific justification.
- To find out how much a proposal may cost, please use our payment calculator.
You are eligible to file a Consumer Proposal if:
1. You owe more than $1,000;
2. You haven’t had a prior proposal annulled; and
3. You are insolvent, which means that you don’t have the income or assets to pay your debts.
As a general rule of thumb, Consumer Proposals make sense for people who:
- Own non-exempt assets, such as a home, RESPs, or multiple vehicles; and
- Have surplus income, meaning income above the government’s standard.
Note: If you owe more than $250,000 you must file a ‘Division I’ Proposal, rather than a ‘Consumer Proposal’.
Whether a Consumer Proposal is the right choice for you depends on your personal situation. Every situation is unique, which is why it’s best to speak to one of our Trustees to have your situation reviewed for free. We can review most situations in a matter of minutes, whether over the phone or during a free consultation.
Yes, tax debt is discharged by Consumer Proposals. This includes:
- Personal Income Tax;
- HST;
- Source Deductions; and
- Director’s Liabilities.
When including tax debt accrued in the same year you file your Consumer Proposal, you need to estimate that liability and include it in your list of debts at the time of filing. Your Trustee can assist you in making this estimate.
Yes, Consumer Proposals can eliminate student loans. However, this is only true if you finished studying more than seven (7) years ago.
The critical question is: What was the last day of the month you concluded your studies? As long as more than seven years have passed since that day, then a Consumer Proposal will erase provincial student debt such as OSAP and federal student debt administered by National Student Loans.
If you are not sure if seven years have passed since you stopped studying, you can call:
National Student Loans @ 1-888-815-4514, or
Ontario Student Loans @ 1-888-449-4478.
If your National Student Loan is in default, contact the Canada Revenue Agency collection department @ 1-866-864-5825.
If the money you borrowed to go to school wasn’t “government-sponsored.” it can be erased through a Consumer Proposal without waiting 7 years.
407 debt can be erased by a Consumer Proposal. If you file a Consumer Proposal and list 407 ETR as a creditor, it will remove your license from plate denial and allow you to renew your sticker.
Ashley
Pre-proposal
- A mother of two
- Unemployed for a period of time while she cared for her sick mother
- Her mother’s health strained her relationship with her then husband who she recently divorced
- Now back to work, and earning $4,500 per month after taxes as an educational assistant
- Struggling with approximately $100,000 in unsecured lines of credit, credit card debt, and legal bills as a result of her unemployment and divorce
- She also receives a $600 monthly child tax benefit payment
- She holds $10,000 in Registered Educational Savings Plan (RESP) investments on behalf of her two children
Post-proposal
- Ashley’s total debt was reduced to $30,000
- Manageable monthly payments of $500 over 5 years without interest
- Ashley is able to pay off the balance of her proposal at any time without penalty if her situation allows for it
- She was able to keep the $10,000 in RESP investments for her children’s education
Summary
Initial Total Debt: $100,000
Debt Remaining after Proposal: $30,000
Payment Obligations: $500 per month
- Each financial situation is unique, but most Consumer Proposals are accepted by creditors. This is because a proposal is still binding even if some of your creditors vote against the proposal. If creditors representing more than half of your debts vote in favour of your proposal, the proposal binds all of your unsecured creditors.
- Most creditors accept fair proposals because they will get more from a proposal than if that same person files for Bankruptcy.
- The Trustee doesn’t automatically inform your employer of your Consumer Proposal unless you owe them money. In the vast majority of cases, your employer will never find out about your proposal.
- There is nothing specific about a Consumer Proposal that prevents you from buying a house, but filing a Consumer Proposal negatively affects your credit rating. This will make it more difficult to qualify for a mortgage.
- Yes. If you are financially able to pay off your Consumer Proposal early, and there is no penalty for doing so. Paying a proposal early means you will eliminate your debt more quickly and start rebuilding your credit sooner.
- You are responsible for making the payments as outlined in the proposal. If you miss three payments, your Consumer Proposal is annulled. This means your debts will not be erased, and your creditors will be able to once again pursue you.
- If annulled, a Consumer Proposal can be revived if your creditors arrange to catch-up on missed payments within 30 days.
- If more than 30 days have passed since your proposal was annulled, it can still be revived by the court.
- Yes, all of your unsecured creditors must be included in your Consumer Proposal.
- However, some debts are not dischartgeable by a Consumer Proposal, including:
- Fines, penalties, and restitution orders imposed by a court in respect of an offence (including parking and speeding tickets);
- Any debt arising out of a recognizance or bail;
- Any award of damages by a court in a civil proceeding in respect of bodily harm intentionally inflicted, sexual assault, or wrongful death therefrom;
- Any debt or liability for alimony or alimentary pension;
- Unpaid spousal or child support;
- Debt obtained by fraud (including E.I. overpayments);
- Debts not disclosed to the Trustee in Bankruptcy; and
- Student debt relating to studies completed within seven years of the date of the Consumer Proposal. Read our blog on this topic here [internal link].
- Someone who co-signs a loan is jointly responsible for the loan. If you file a Consumer Proposal, the co-signer is still responsible for paying the remainder of the debt. This means they must repay the portion of the debt that is forgiven by the proposal.
- Unless your friend or family member is one of your creditors, they will not be informed of your Consumer Proposal.
- Debts that are in your name will only affect your financial situation and your credit rating. However, if you have joint debts that you hold with a spouse, your spouse will become responsible for paying the remainder of the debt once you file a Consumer Proposal. This means they will have to pay the portion that is forgiven by the proposal.
- A Consumer Proposal is not a loan; it is a legal payment arrangement that only Federally Licensed Insolvency Trustees can negotiate with your creditors.
- Consumer Proposals were designed for people who cannot afford to repay 100% of their debts plus interest and need to settle them for less than they owe.
- Trustees don’t pay your creditors and then collect from you; they simply collect your money and forward it to your creditors as agreed. They’re called Trustees because they have thousands of customers and hold millions of dollars in trust before it is paid out to creditors.
- No, you will have to surrender all other credit cards for cancellation, but you can apply for a secured creditor after filing your Consumer Proposal.
- No assets are seized due to a Consumer Proposal, so you will not lose your vehicle. You will, however, need to continue to make any payments that are owed on the vehicle.
- If your vehicle is unaffordable, you may choose to surrender it through the Consumer Proposal process and erase the balance of your auto loan.
- No assets are seized due to a Consumer Proposal, so you will not lose your home. You will need to make sure that you continue to make your mortgage payments. Also, since a Consumer Proposal negatively affects your credit rating, it could be more difficult to renew your mortgage when the time comes.
- No assets are seized due to a Consumer Proposal; you can keep the money saved in your childrens’ RESP accounts.
- No assets are seized due to a Consumer Proposal; you can keep the money saved in your RRSP.
- No assets are seized as a result of a Consumer Proposal. A Consumer Proposal does not affect your life insurance policies.
Request free advice from a Licensed Insolvency Trustee
Canadian laws allow you to have a fresh financial start.
Why wait? Take control of your debts now. The sooner you get started, the sooner you will leave debt and stress behind.