Consumer Proposal Information: What is a Consumer Proposal?
A consumer proposal involves agreements between you and the companies you are indebted too.
You have to pay back a portion of what you owe.
The repayment amount proposed is based on your income versus what you own.
Consumer proposals can significantly reduce your debt.
How to File a Consumer Proposal in Quebec
A consumer proposal can only be handled by a licensed bankruptcy trustee, also known as a licensed insolvency trustee (LIT).
To be effective, the creditors who hold the majority of your debt have to sanction the proposal.
Then, the agreed amount is remitted over a period of up to 60 months / 5 years.
A proposal to your creditors is a great option to avoid declaring personal bankruptcy.
It can be used to consolidate debt, lower monthly payments and dispatch personal debts.
What happens when you file a consumer proposal?
Here’s what happens when you file a consumer proposal.
- Generally, wage garnishments stop immediately;
- No more Interest accumulates, effective the day you file;
- By law, creditors and collection companies must stop contacting you regarding payments;
- Unlike bankruptcy, you won’t lose your home or other assets;
- You repay a portion of your debt over a maximum of 5 years.
What Debts Can Be Included in a Consumer Proposal?
Unsecured debt is included in a debt proposal.
Student loan debt can be included if you’ve been out of school at least seven years.
For a car loan or mortgage, you can’t include this in your consumer proposal.
Unfortunately, this type of debt is secured debt tied to possessions that can be repossessed if you don’t make the payments.
As such, they aren’t eligible for inclusion in a proposal.
So, you remain on hook for your car and house payments after agreeing to a consumer proposal.
However, most debtors find it much easier to maintain mortgage payments after a proposal because they are not paying on their credit cards every month.
On the other hand, creditors cannot target your home and car once you file a consumer proposal, which protects those personal assets.
After you file a consumer proposal, you may have an easier time paying your mortgage and car payments.
What Are the Conditions of a Consumer Proposal?
Once the proposal is accepted, you must honour the terms and conditions.
This means making monthly payments for up to five years.
The LIT makes your payments directly as agreed to in your consumer proposal.
You may have to attend financial counselling as well.
You can’t use unsecured credit cards, but you may be able to obtain a secured one (which requires a deposit).
Read your consumer proposal carefully to make sure you know what you’re agreeing to.
What Are the Consequences?
Consumer proposals typically take longer to process than bankruptcy.
With a lower monthly payment, you improve your cash flow, but it takes longer to pay off your creditors.
So, it’s a good idea to pay off the proposal sooner if your financial position improves.
For those with no major assets, such as a car or home, or those with a low income, it might make sense to opt for bankruptcy rather than a consumer proposal.
A good LIT should be able to answer your questions on how the process impacts your personal situation.
While a debt proposal is easier on your credit score than bankruptcy, an R7 credit rating remains on your credit report for about three years following the completion of your consumer proposal.
Tips on Working With a Proposal Administrator
Only a LIT can administer a consumer proposal, so it’s important to find someone you trust to work with.
The first step in this process is vetting out LITs in your area and contacting them for an initial appointment.
You can find one by visiting the Quebec government website and searching for trusted LITs in your city.
Another option is a Google search.
Try searching for the phrase ‘Licensed Insolvency Trustee in Quebec.’
Keep in mind that an LIT works for you.
Even though you may be eager to get help as soon as possible, make sure you’re comfortable with the person assigned to handle your proposal.
When you meet with the LIT, they walk you through the process to determine a repayment plan that works for you and is likely to be accepted by your creditors.
The next step is signing the paperwork, which the trustee files electronically with the government.
Your creditors can reject, accept or counter your proposal.
Fortunately, there are no initial costs for hiring an LIT.
Their fees are included in the payments they negotiate for you.
If the proposal is fair, creditors are likely to accept the terms.
Your remaining obligation, besides paying your monthly payment, is attending credit counselling.
The credit counselling nets you a certificate of full performance.
Then, you can begin to rebuild your credit score.
A consumer proposal doesn’t work for everyone, but it can be a great benefit to those drowning in debt who need a fresh start.
Advantages of Filing a Consumer Proposal
“Surplus income” is not a consideration, as it is in bankruptcy.
As an alternative to bankruptcy, filing a consumer proposal has the following advantages:
- You can substantially lower what you have to pay to your creditors
- It’s effective for debt consolidation when:
- You can no longer afford to repay your debts;
- You have a reliable income;
- The person can fit the monthly payments in your budget.
- A proposal pauses student loan payments;
- It’s a viable option if:
- You can’t get a debt consolidation loan;
- Your debt includes government and other loans that can’t be rolled into a debt management program.
- It’s a last ditch effort to avoid bankruptcy but still counts as a legal insolvency process that impacts your credit rating.
Not Sure if a Consumer Proposal is Right for You?
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Why would your creditors accept a Debt Proposal?
Creditors are inclined to accept consumer proposals because the main rule of a consumer proposal is that the creditors must receive more than they would in the case of a bankruptcy filing.
Therefore, your creditors are willing to accept a proposal in most cases.
Some creditors are more picky than others about accepting proposals, however most creditors would rather receive 20 or 30 cents on the dollar in a proposal.
If you file bankruptcy, the creditors often receive very little funds.
If you submit a proposal and it is rejected you are not automatically declared bankrupt.
What are the qualifications to file a Consumer Proposal?
Most debtors in Quebec considering a first consumer proposal are qualified to file a proposal if they need debt help.
To be eligible to file a proposal a person:
- Should be at least 18 years old;
- Must owe less than $250,000 (not including mortgage on principal residence);
- Should be able to afford a fair proposal to their creditors (A debtor generally repays about 30 cents on the dollar in a proposal); and
- Must be insolvent (unable to repay your unsecured debt in full in a reasonable time).
Additionally, a person cannot have any open proposals and they must use the services of a Licensed Insolvency Trustee (Consumer Proposal Administrator).