A Consumer Proposal is an option available to individuals and businesses in which we would make an offer to your creditors to modify your payments. It may result in a lower, more manageable monthly payment over a longer period of time, or it may result in your creditors’ agreeing to accept a percentage of your total debt.
You are eligible to make a consumer proposal as an insolvent individual when your total debt is not more than $250,000, even if you’re bankrupt In the case of a bankrupt, you must enlist. If a majority of your creditors approve the proposal, all your unsecured creditors must, by law, accept it also.
Two or more individuals may make a joint proposal when they may reasonably be dealt with together because of their close financial relationship.
When debts exceed $250,000, a proposal must be made under Division I, Part III, of the Act. This generally applies to small- to medium-sized businesses. Usually, the proposal asks unsecured creditors to accept a portion of the full amount owed. Secured creditors are negotiated individually. Call us for information specific to larger, more complex proposals.
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Consumer Proposal Questions
Q: What is a consumer proposal?
A: It’s when a formal arrangement is made with your creditors under the Bankruptcy and Insolvency Act to repay your debts – or very often a portion of them – over a period of time, which can’t exceed five years.
Q: Can anyone file a consumer proposal?
A: If you are unable to repay your entire debt, and it’s less than $250,000 not including your mortgage, you can file a consumer proposal. A proposal is a legally binding procedure; by contrast, a debt management plan is a voluntary agreement between you and your creditors. A proposal is administered for the court by a licensed trustee who acts as an administrator. A debt management plan is a service provided by your GTA Credit Solutions Servicces Ltd.
Q: Can I file a consumer proposal without a trustee?
A: GTA Credit will arrange the Trustee.
Q: If I do choose to file a consumer proposal, what happens to my assets?
A: Nothing. They’re still yours.
Q: Will a consumer proposal stop collection action by my creditors?
A: In most cases, it will stop garnishments and other legal actions. A consumer proposal is a good direction to go in to work on clearing your debt.
Q: What if I don’t fulfill the terms of my proposal?
A: If you go more than three months into arrears on your proposal, it is automatically annulled and your creditors will resume their collection efforts. You may not file a second consumer proposal, but if you have a valid reason for your failure to complete the proposal, your trustee may reinstate it.
Q: What effect does a consumer proposal have on my credit rating?
A: Your rating will drop to an “R9”, or bad debt, for the duration of the proposal (up to five years), then become “R7,” which reflects that you are making regular payments through special arrangement. It is dropped from your record three years after that.
Q: Are there any other requirements of a consumer proposal?
A: Yes. You are required to attend two credit counselling sessions.
Q: How long after filing is my consumer proposal accepted?
A: If there is no objection by your creditors, then it is accepted within 45 days. If it is rejected by your creditors or the court, you may not make another proposal, but GTA Credit will help you find another solution.
Q: What is a Division I proposal?
A: It’s similar to a consumer proposal, but used when debt is more than $250,000 including car loans.
Q: Why would my creditors accept a consumer proposal?
A: Because it’s better to get something than nothing. Let’s say you owe $40,000, and in your consumer proposal, you offer to pay half of that. Your creditor may accept $20,000 because they believe you may otherwise be forced to declare bankruptcy and they’ll get nothing. A consumer proposal is a good option for everyone involved. Your creditors recover some of what they loaned to you, and you get to keep those assets that you may lose in bankruptcy.
Q: What are the advantages of a consumer proposal?
A: It lets you make one monthly payment towards all of your unsecured debts, and in some cases can help reduce your debt load by as much as 70%. You don’t have to declare bankruptcy, and you likely won’t lose your assets. You continue to make payments as usual on your secured loans, and your unsecured creditors stop any further collection actions. Garnishments on your wages and bank accounts stop. And any interest or penalties stop piling up as soon as you submit.
Q: Can the proposal be changed if it’s rejected?
A: If your creditors vote against your proposal, they will let you know under what terms it would be acceptable. If it doesn’t get majority support (with each dollar of your claimed debt counting as one vote), it can then be amended.
Q: One of my credit card bills isn`t that big and I’d like to keep the account. Can I leave that creditor out of my consumer proposal?
A: No. You are required by law to include all your unsecured creditors when filing a consumer proposal.
Q: What is a joint consumer proposal?
A: A joint proposal is when more than one person submits a proposal together because they share a close financial relationship and their case can reasonably be considered together.
Q: Will filing a consumer proposal impact an immigration sponsorship?
A: You should check with Citizenship and Immigration Canada to get the most up to date information, but as of this writing, you can submit a consumer proposal and sponsor someone for immigration at the same time. You can’t, however, sponsor someone while you are an undischarged bankrupt. It’s important to note that when a consumer proposal is successful, any interest you’re paying is frozen, you may only have to repay a portion of your debts, garnishments on your wages cease, and your creditors are restricted from taking any legal action.
Q: How does a consumer proposal affect my credit report?
A: For the course of the proposal, up to five years, you will be rated “R9” or bad debt. Once the terms of the proposal are fulfilled, you will be rated “R7,” which reflects that you are repaying your debts by special arrangements, for three years.
Q: Who keeps track of my credit history?
A: In Canada, there are two credit bureaus, Equifax and TransUnion, who keep track of your credit. A consumer proposal will be reflected on your credit report for three years after it is completed.
Q: How does that affect my future?
A: A lower credit rating will affect your ability to get future credit, but the rating you get with a consumer proposal is not as bad as if you declare bankruptcy, and it doesn’t stay on your record as long. A bankruptcy will be on your credit report for seven years or more.
Q: I own a house and a car. Do I get to keep them?
A: Most of the time, secured creditors aren’t involved in a consumer proposal. You will likely continue to make your payments as usual.
Q: What happens when my mortgage comes up for renewal?
A: You’ll have to discuss the details with your lender, but usually if you keep your payments up to date and can prove that you will be able to continue to make your payments in the future, you will qualify for a renewal.
Q: Am I qualified to submit a consumer proposal?
A: You may be, if your debt doesn’t exceed $250,000 not including your mortgage (primary residence). Everyone’s case is different. GTA consultant can review your details and help you determine that.
Q: Can I go to jail for filing a consumer proposal?
A: As long as you file truthfully, there are no criminal charges associated with filing a consumer proposal.
Q: Can I pay my full debt through a consumer proposal?
A: At the end of the term of the proposal (up to five years), your debts are considered fully paid, even though most of the time the amount will be less than the actual debt you started with.
Q: I have to leave the country for my work. Can I do a consumer proposal first?
A: You should discuss your unique position with GTA consultant.
Q: How much does a consumer proposal cost?
A: It depends on a few factors, including your monthly budget and the value of your assets. Talk to GTA consultant about your specific situation.
Q: How long will a proposal last?
A: Up to five years.
Q: What happens if I can’t afford to finish my proposal?
A: If you miss three months of payment and do not file an amendment, your proposal is no longer a legally binding agreement and your creditors are free to take further collection action against you for the full amount of your debt. You may have to file for bankruptcy. Your trustee can advise you further.
Q: What happens if I forget a creditor on my proposal?
A: It depends on the amount of the debt. Your proposal may continue as offered if the debt is small, but a larger debt may mean an increase to your proposal payment.
