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What is a consumer proposal?

A consumer proposal is a solution provided for under the Bankruptcy and Insolvency Act that consists of making a proposal to your creditors with a view to settling your debts. Its purpose is to consolidate the debtor's total debts into monthly payments, and to spread the payment period over several years. The proposal applies to unsecured debts such as credit cards, bills and taxes. It is therefore made to unsecured creditors.

The proposal allows you to :

• Pay off your debts over a period of up to 5 years
• Reduce your debt by 70% or more
• Reduce the amount you pay each month

The main condition for making a consumer proposal is that your total expenses, not including the mortgage on your principal residence, must not exceed $250,000.

You must also be insolvent:

• Have debts of at least $1,000
• Reside or own property in Canada
• Have financial problems such as:

• Not being able to pay your debts on time
• Not being able to pay your regular bills
• The value of all your assets is less than the value of all your debts.

How does a consumer proposal work?

The process of requesting a consumer proposal can take time and requires the presence of a licensed insolvency trustee. Here are the steps involved:

1. First meeting

You begin by meeting with your advisor or SAI to assess your financial situation together and explore the various solutions available to you. You'll have a few documents to sign, and then the turnaround process can begin. Your first meeting with the trustee is free with Groupe Serpone.

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2. Proposal submission

The IAS is responsible for filing all the necessary documents with the Office of the Superintendent of Bankruptcy (OSB) to begin the consumer proposal process.

3. Notice to creditors

Your trustee in bankruptcy then informs your creditors of your approach. They will then deal with him. They will no longer be able to harass you and constantly call you to make payments.

4. Acceptance or rejection of proposal

Your creditors have 45 days to decide whether or not to accept the proposal. They may request a meeting of creditors to discuss your proposal with your IAC. For a meeting to take place, at least 25% of all creditors must request one; otherwise, your proposal is considered accepted.

5. Consultation meetings

You will be required to attend two consultation meetings. During these meetings, your trustee in bankruptcy will give you advice on maintaining good financial health and analyzing your financial habits. He or she will give you tools and techniques to ensure that you never have to go through this difficult situation again. At the second meeting, you'll receive further advice to help you better plan your future and manage your budget to avoid falling back into debt.

6. Approval of proposal

If your creditors have not requested a review 15 days after your proposal has been accepted, your request is approved by the court.

7. Discharge of debts

Once the payments specified in your proposal have been made, your authorized insolvency trustee will issue a certificate releasing you from your debts.

What cancels a consumer proposal?

There are two major reasons why a consumer proposal may be cancelled. The first and most common reason is late payment. If you are 3 months behind with your payment, your consumer proposal will automatically be cancelled.

The second reason relates to the court. The court has the right to intervene in the acceptance or rejection of a consumer proposal if certain conditions have not been met. This is rare, because the court almost never intervenes to cancel a proposal.

What are the consequences of cancelling a consumer proposal?

The consequences of cancelling a consumer proposal can be severe. First, upon cancellation, you will immediately lose the amount of money that was sent to your creditors. Any debt that has already been repaid during the proposal period will no longer be taken into account, and you'll have to start all over again.  

Secondly, all interest charges, invoices and penalties that were included in the proposal will revert back to the way they would have been if you had never submitted a proposal in the first place. Thirdly, cancellation of the proposal affects your credit file. It will remain on your file for 6 years. Finally, when a consumer proposal is cancelled, it will be difficult, if not impossible, to make another one.

Cancelling a consumer proposal: what are your options?

According to the Bankruptcy and Insolvency Act, an automatic cancellation of your consumer proposal occurs immediately if you are 3 months in arrears. If this is your case, don't worry. If your proposal is cancelled, you have the following options:

1. Ask your SAI to restore the proposal

You can turn to your licensed insolvency trustee, who in turn can help you re-establish your consumer proposal. In order for your IAD to help you, you must be able to demonstrate within 30 days of the cancellation that you are able to remedy your default. To reinstate your consumer proposal, your insolvency representative may ask you to pay the missing amount in full.

Please note that your creditors will be informed directly after the cancellation of your consumer proposal. They may object to the reinstatement of the proposal within 60 days of the cancellation.

2. Ask the Court to reinstate the proposal

If you miss the 30-day deadline after cancellation, you can apply to the court for reinstatement. The application process is quite complex, and we recommend that you consult your trustee to ensure that the application is completed without risk of refusal.

If you can explain the reasons for your late payment and ensure that you'll be able to pay everything without delay, the odds could be in your favor.

3. Declare bankruptcy

If it proves impossible to reinstate your consumer proposal, you may consider personal bankruptcy to regain creditor protection and eliminate the majority of your debts. Before proceeding with your bankruptcy application, we recommend that you consult your licensed insolvency trustee to analyze your financial situation in detail and determine whether this is the best solution.

4. Request permission to submit a new proposal

You can apply to the court for permission to file a new consumer proposal if you need more time to pay off the debts owed as a result of the delay. Be sure to consult your trustee to see if this is a viable option in your case.

5. Negotiate with your creditors

Once your consumer proposal is annulled, your protection against creditors falls away, and creditors will be able to contact you again to claim the amounts owing to them. Be aware that your debts may potentially include retroactive interest following the filing of your proposal.

Negotiating with creditors is possible, but difficult. A good negotiation will enable you to reduce the amount of debt, extend the repayment period or reduce interest rates. This approach is tricky, however, because your creditors are not bound to each other, so it can take a long time.

Need the advice of an insolvency expert?

How can I avoid cancellation of a consumer proposal?

It's always advisable to consult a licensed insolvency trustee to assess your financial health and determine the solution that best suits your needs and reality. That way, you're sure to choose the best debt relief solution.

Modify your consumer proposal

If you're no longer able to make your payments on a regular basis, you can talk to your trustee about modifying the terms of your proposal and avoiding its cancellation. If there is ever a major change in your life that affects your income, be sure to contact your trustee as soon as possible to find a solution. Remember that you can only miss two payments; the third will result in automatic cancellation of your proposal.

Repay your consumer proposal

You can take out a loan with a financial institution to pay off your consumer proposal faster. This option has its advantages and disadvantages.

Getting a loan gives you more flexibility in repaying your payments and helps you avoid cancellation of your application. What's more, if you meet your payment obligations, you'll be able to erase the note from your credit file, which might otherwise remain there for 8 years. If you pay on time, you can improve your credit rating.

As a result, you'll be able to get a mortgage just after you've paid off all your debts.

However, this option can also have its drawbacks:

• More interest charges and debts to pay: You'll have more interest charges to pay, so there's a risk you'll incur more debts.
• Risk of loan application rejection: Applying for a loan with a proposal deposit can be a daunting task. Every rejected loan application means another mark on your credit file.

Do you find yourself in a complex financial situation and don't know what to do? Our group of bankruptcy and insolvency experts offers a range of personalized services tailored to your needs. Don't hesitate to contact us for a free consultation.