How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

Qualifying for a Consumer Proposal

Article Summary

Understanding Consumer Proposals
Who Can File a Consumer Proposal?
Eligibility Criteria for Filing a Consumer Proposal
Considerations for Acceptance
Steps to File a Consumer Proposal
Real-World Case Studies for a Consumer Proposal
Get Debt-Free with Campbell Saunders

In today’s economic landscape, many Canadians find themselves grappling with financial challenges. For individuals seeking relief from overwhelming debt, a consumer proposal can be a valuable solution. This article will explore who can qualify for a consumer proposal and the considerations that may impact the likelihood of acceptance.

Understanding Consumer Proposals

A consumer proposal is a legal agreement where you typically repay a portion of your debt to creditors, though in some cases, full repayment may be required if you have assets valued higher than your total debt.

Unlike a loan, it doesn’t involve borrowing more money, and it’s not paid back the same way a loan is. It’s overseen by a Licensed Insolvency Trustee and regulated by Canada’s Bankruptcy and Insolvency Act (BIA).

Who Can File a Consumer Proposal?

According to the BIA, specific criteria must be met for an individual to qualify for a consumer proposal. Section 66.12 (1) states:

A consumer proposal may be made by a consumer debtor, subject to subsections (2) and 66.32(1).

In general terms this means that a consumer proposal can only be filed by someone who is considered a consumer debtor, which means they meet specific legal requirements.

Definition of a Consumer Debtor

Consumer debtor is defined as an individual who is either bankrupt or insolvent, with aggregate debts (excluding debts secured by the individual’s principal residence) not exceeding $250,000. Here’s a closer look at these terms:

Bankrupt: A person who has made an assignment in bankruptcy or against whom a bankruptcy order has been made. Essentially, this means that the individual has officially declared bankruptcy.
Insolvent person: An individual who resides in Canada and is not bankrupt but cannot meet their financial obligations.

This could be due to various reasons, including:

Being unable to meet obligations as they generally become due.
Ceasing to pay current obligations in the ordinary course of business.
Having assets insufficient to cover all debts, even if sold at a fair market price.

Eligibility Criteria for Filing a Consumer Proposal

To determine eligibility for a consumer proposal, several factors must be considered:

Debt Limits

You can only file a consumer proposal if your total debt, excluding the mortgage on your primary residence, is less than $250,000. This includes unsecured debt, like credit card debt, as well as other secured debt. If your debt is higher than this limit, other options, like a Division I proposal or bankruptcy, may be more suitable.

Current Debt Proposal Status

You can’t file a consumer proposal if you’re already involved in another debt plan, such as a Notice of Intention to File a Proposal (NOI) or a Division I proposal. If you previously filed a consumer proposal that was cancelled, you can only file a new one if you’ve paid off the debts from the first proposal or received permission from the court.

If filing a proposal out of bankruptcy, only debts up to the date of bankruptcy are included—not any new debts acquired afterward.

Residency Requirement:

The individual must be a resident of Canada have property in the country or carry on business in the country This requirement ensures that the legal processes and protections under Canadian law apply to the debtor.

Age Requirement:

To qualify for a consumer proposal, the individual must be at least 18 years old. This ensures that the person is legally able to enter into a binding agreement.

Financial Assessment:

Before filing a consumer proposal, a Licensed Insolvency Trustee will conduct a thorough assessment of the individual’s financial situation. This includes reviewing income, expenses, assets, and overall debt.

The trustee will help determine if a consumer proposal is a suitable option and can assist in preparing the necessary paperwork.

Considerations for Acceptance

While qualifying for a consumer proposal is essential, several considerations can affect whether the proposal will be accepted by creditors:

Creditor Approval: After you file a consumer proposal, most of your creditors (based on the amount of money you owe them) need to agree to it for it to become official. Even if you qualify to file, your creditors must still accept the plan. Your proposal should show them that they’ll get a fair amount of their money back.
Payment Terms: The terms of the proposed payments must be realistic and achievable for the debtor. The trustee will work with the debtor to establish a monthly payment amount that takes into consideration their income and living expenses. If the proposed payment is too high, creditors may reject the proposal because they assume it will not be completed successfully but this is an uncommon process.
Transparency: Providing accurate and complete information to the trustee and creditors is vital. Any discrepancies or lack of transparency regarding financial circumstances can lead to the rejection of the proposal.
Prior History: Creditors may consider an individual’s previous financial history, including any past bankruptcies or consumer proposals. If a debtor has a history of failed proposals, creditors might be more reluctant to accept a new one.
Timing of Filing: Timing can also impact the likelihood of acceptance. For instance, if an individual files a consumer proposal after falling behind on multiple payments, creditors may be less willing to accept the proposal compared to someone who is proactively seeking debt relief before reaching a crisis point.

Steps to File a Consumer Proposal

Feeling overwhelmed? Remember, the first step is just a free consultation with a Licensed Insolvency Trustee. We’re here to help.

Meet with a Licensed Insolvency Trustee:

Your first step is to meet with a licensed expert who will look at your finances and help you decide if a consumer proposal is right for you.

Prepare the Proposal:

If a consumer proposal is the best option, the trustee will help you put together all the necessary paperwork. This will include a plan for how much you will pay back to your creditors and the terms of your repayment.

File the Proposal:

The trustee will file your proposal with the government and send a copy to your creditors. Creditors might also schedule a meeting to talk about the proposal.

Creditor Meeting:

At the meeting, your creditors will vote on whether they accept your proposal. If most of them agree, the proposal is approved, and you can start making the payments.

Complete the Proposal:

Once you’ve made all the payments as promised, as well as attended two required financial counselling sessions, your remaining debt is wiped away, and the consumer proposal is finished.

Only a few types of debt will not be resolved by a consumer proposal – the common ones are student loans where your end date of studies was less than 7 years before filing the proposal, Court fines, and debt to CRA where you were holding funds in trust for someone else, like source deductions for your employees as a business owner.

Real-World Case Studies for a Consumer Proposal

To better understand how a consumer proposal can change lives, here are a few examples:

Decreasing Debt by 73%: A BC Resident’s Journey

After struggling with $100,000 in debt, one BC resident managed to reduce it to $27,000 by filing a consumer proposal. By working with a trustee, they found a manageable payment plan that gave them a fresh start.

Here are more real-life examples of debt reduction through consumer proposals:

$61,610.71 reduced to $21,000
$165,244.22 reduced to $36,000
$44,284.55 reduced to $14,100

Helping a Retiree Eliminate Debt

A retiree facing overwhelming credit card debt and tax debt turned to a consumer proposal. The trustee helped them reduce their debt to a level that fit their fixed income, allowing them to retire without financial stress.

Benefits of a Consumer Proposal?

A consumer proposal offers several key benefits for those struggling with debt.

It can significantly lower your monthly payments, stop any interest from building up, and allow you to avoid bankruptcy while keeping important assets like your home or car.

If you’re looking for a way to manage your debt without losing everything, a consumer proposal might be the right solution for you.

Learn more about the benefits of a consumer proposal and how it can help you take control of your financial future.

Get Debt-Free with Campbell Saunders

Whether it’s credit card debt, tax debt, or simply feeling like you’re drowning in bills, we’ll work with you to find the best solution. Don’t let your debt control your life. Schedule your free consultation with Campbell Saunders today and take the first step toward becoming debt-free. The sooner you act, the faster you can regain control over your financial future.