How Do Consumer Proposals Work?

This page provides an in-depth description of the process you can expect to go through when filing a consumer proposal in Canada and how the consumer proposal works as a debt settlement solution to release you from your unsecured debt obligations. You may find these additional articles helpful:

1. What Is A Consumer Proposal? (Is it worth it?)
2. Consumer Proposal vs Bankruptcy
3. Consumer Proposals And Your Credit Score

The Consumer Proposal Process

Consumer proposals are a fairly new form of formal debt settlement initiated by the federal government as an alternative to bankruptcy in Canada. The process is described and protected by federal legislation known as the Bankruptcy and Insolvency Act. In accordance with the act, only a Licensed Insolvency Trustee can administer a consumer proposal. Their primary function is to ensure that the proposal is administered properly, but they are also responsible to ensure that you know all of the options that are available to you. With this in mind, the first step towards filing a consumer proposal is a free and confidential consultation meeting with a Licensed Insolvency Trustee.

Meeting with a Licensed Insolvency Trustee

Consumer proposals are generally the same throughout Canada, so it makes sense to meet with a Licensed Insolvency Trustee in your area. If you are thinking of filing a consumer proposal in Alberta, then you will meet with a Licensed Insolvency Trustee in Alberta. Working with a company that is part of The Independent Canadian Insolvency Network ensures that any multi-province files are dealt with correctly.

The initial consultation is typically scheduled as an hour-long appointment. The Trustee will review your financial situation and current debt obligations. Once they have a clear understanding of what you are dealing with they will show you all of the options that are available. There is no risk involved and no obligation to move ahead with any particular option. You can ask questions and address any specific concerns you might have. You can rest assured knowing that you will leave with a clear understanding of your options and the information you need to make a decision.

What do I need to bring to the free consultation meeting?

• Bring a list of your debts including who you owe and how much.
• It is a good idea to write down any specific questions or concerns beforehand so you remember to ask them at the meeting.

Create A Repayment Plan

Once you decide to move forward with a consumer proposal you can engage the Licensed Insolvency Trustee of your choice to start the process. The Trustee will work with you to develop a payment plan to include with the proposal. The plan will specify a proposed repayment amount and a proposed period over which payments will be received. In many cases, you can end up paying as little as 20% of what was originally owed. The maximum repayment period is 60 months (5 years).

The repayment plan will consider your expected income, family situation, and current obligations. It will also consider the amount that your creditors would receive if you were to file for bankruptcy instead. Payment plans typically include a fixed monthly amount over a period of 1 to 5 years. Ultimately it will have to make sense given your financial situation, and be acceptable to your creditors. The Trustee will work with you and guide you through this part of the process.

How will the Trustee be paid?

• There are specific rules and calculations set by the government that determines how a Licensed Insolvency Trustee will be paid to administer a consumer proposal. They will receive a portion of the funds collected through your proposal payments.

Are there any up-front costs?

• An initial deposit may be required as part of the payment plan.

 Preparing And Filing Documents

With the agreed-upon repayment plan, the Trustee will finalize the consumer proposal document and prepare the other documents necessary for filing a consumer proposal in Alberta. These documents will include:

1. A Statement of Affairs, which is a financial statement detailing the estimated value of your assets and the total amount of your debts. This will include information related to your creditors, such as their names and addresses.

2. A Statement of Income and Expenses detailing your household income and expenses for the family.

3. An Assessment Certificate that includes a personal declaration that the Licensed Insolvency Trustee informed you of possible alternatives and you are choosing to file a consumer proposal.

4. The Consumer Proposal itself which includes the proposed repayment plan.

5. Any other administrative documents required by the Trustee.

You will be required to sign the documents prior to them being filed. This is another opportunity to ask any questions or get clarification from your Trustee on anything you do not yet understand. Once the documents are complete the Trustee will file them with the Office of the Superintendent of Bankruptcy (OSB). This is done through an electronic filing system that is used by all Licensed Insolvency Trustees across Canada.

Stay of Proceedings

Once the documents have been filed, there is a stay of proceedings, which is a legal term describing the protection you receive from your creditors. They can no longer charge interest, garnish your wages, or contact you regarding any debts. Any judgements or current legal proceedings will be put on hold.

Can I file the documents myself?

• No. The documents can only be filed by a Licensed Insolvency Trustee.

Consumer Proposal Acceptance

Once the documents have been filed with the OSB the LIT has 5 days to notify all of the creditors included in your proposal. A Notice to Creditors is sent out informing your creditors of your financial situation and presenting the proposed payment plan as part of the complete consumer proposal. Upon being notified, your creditors have 45 days to accept or reject the proposal.

For a consumer proposal to be accepted it must be approved by creditors representing at least 50% of your overall debt. Your proposal will be automatically approved if it is opposed by less than 25% of your creditors. This is most often the case. If over 25% of your creditors reject the proposal then a Meeting of Creditors will be held where another vote is taken. Once the proposal is accepted, it becomes binding on all creditors, even if they initially rejected the proposal.

What if the consumer proposal is ultimately rejected?

• If the consumer proposal is ultimately rejected then you would have to pursue another course. Filing for bankruptcy could be an option.

Completing Your Consumer Proposal

Throughout the term of your proposal, you are required to make the agreed-upon payments as well as attend two credit counselling sessions. If more than two payments are missed, then the proposal is deemed to be annulled and will no longer be in effect. Generally, this can be avoided by communicating with your Trustee and planning for any foreseeable changes to your income. If you believe you must miss a payment, contact your Trustee as soon as possible.

Conversely, there is no penalty for completing your payments early. If you are able to manage it and wish to pay off your proposal early you can make arrangements with your Trustee to do so.

The Trustee will assist in scheduling your credit counselling sessions as required. The first counselling appointment must be completed within 10 to 60 days of filing the proposal. The second appointment must take place at least 30 days after the first one, and before the 210th day of your proposal term. These sessions are with professional counsellors and are designed to empower you with skills and resources to manage debt and avoid future insolvency.

Once your obligations are complete the Trustee will issue a Certificate of Full Performance as proof that you have satisfied the terms of the proposal. It is at this point that the remaining portion of your original debts is forgiven. The Trustee will send further documentation to you, your creditors and to the Office of the Superintendent of Bankruptcy to close the file.

Will the Trustee contact the Credit Bureau to let them know the consumer proposal is complete?

• No, the credit bureau will be contacted by the OSB with notification that the proposal is complete. This may take a few months.

How long will the consumer proposal remain on my credit history?

• Records of the consumer proposal generally remain on your credit history for up to 3 years.