In Canada, the consumer proposal is a relatively newer legal procedure for dealing with debt. Consumer proposals were first introduced as alternatives to bankruptcy and in the decades since, have become increasingly common. Reforms made to the Bankruptcy and Insolvency Act in 2009 made consumer proposals more readily available to Canadians who were struggling with debt.
In the 2010s, consumer proposals overtook bankruptcy as the most common type of consumer insolvency in Canada, in no small part due to their effectiveness and simplicity.
Anyone considering their debt relief options should understand how a consumer proposal works in Ontario. It is an effective tool that can change the course of your financial future.
Pros and Cons of Consumer Proposals
1. Debt Reduction
Filing a consumer proposal will often reduce the total amount of debt you have to repay. In some cases, you can pay as little as 20 to 30 percent of what you originally owed. You can pay this amount for a period of up to five years, but that period can be shorter.
2. Your Assets Are Protected
One of the chief advantages of a consumer proposal over bankruptcy is that a consumer proposal does not touch any of your assets, including real estate, investments, and other forms of wealth. You will need a source of income to make your monthly payments, but consumer proposals are designed to be affordable.
3. Protection from Collections
A consumer proposal will also protect you from collection efforts by your creditors. That includes collection calls, wage garnishments, and attempts to register a lien on your property.
4. Affordable Monthly Payments
You pay off a consumer proposal in monthly installments based on what you should be able to afford each month. They are meant to be affordable.
The main downside of filing a consumer proposal is its impact on your credit score. It will remain on your credit history for up to six years or three years after you pay it off. However, if you’ve been struggling with debt, it’s likely that your credit report is already low.
Filing a Consumer Proposal with a Licensed Insolvency Trustee
As a federally regulated procedure, a consumer proposal must be registered by a Licensed Insolvency Trustee. They will start the process with a free consultation where they assess your finances and explain all of the options available to you.
Once your debt has been assessed, they will look at your ability to make monthly payments and determine how much they can propose to your creditors.
The Licensed Insolvency Trustee will then prepare the documents needed to send to your creditors for your proposal. These documents include paperwork like a Statement of Affairs, Statement of Income and Expenses, and the consumer proposal itself, which contains details about how much your creditors can recoup.
Your creditors will then review the proposal and decide to either accept or reject it. As long as the majority of your creditors (based on the amount you owe) accept the proposal, it becomes legally binding for all of your unsecured creditors.
Consumer proposals can be a very effective method for getting out of debt. Talk to a Licensed Insolvency Trustee about whether or not it’s a good solution for you.