What is a Consumer Proposal?
A Consumer Proposal is a process that allows you to make an arrangement to pay all, or part, of your unsecured debts through monthly payments over a specified period of time. With assistance from a Licensed Trustee, you may be eligible to file a Consumer Proposal provided your debts do not exceed the sum of $250,000 excluding the mortgage on your principal residence.
Once the Consumer Proposal is prepared and filed, unsecured creditors have 45 days to vote on whether or not to accept your proposal. If a majority (based on the value of their claims) of your creditors accept the proposal, it becomes legally binding on you and all of your unsecured creditors. A Licensed Trustee administers your Consumer Proposal and distributes the money on a pro rata basis or in proportion to the debt owed.
Once you have complete the terms of your Consumer Proposal and attend two debt counseling sessions, you will receive a Certificate of Full Performance which serves as confirmation that you were successful in fulfilling the terms of the proposal. In addition, you will be released from any further payment obligation to your unsecured creditors on any remaining balance owing. Keep in mind that certain debts (e.g. child support) cannot be extinguished and as such your obligation in certain cases would remain.
A Consumer Proposal generally does not interfere with your obligations in respect of secured creditors (e.g. mortgage, vehicle loan). You would continue to make payments on your mortgage and/or vehicle loan outside of the process.
How long does a Consumer Proposal take to complete?
The length of time it takes to complete a Consumer Proposal depends on a number of factors, particularly the amount of unsecured debt you have and your ability to make payments in such a process (i.e. your cash flow). However, a consumer proposal cannot extend beyond 5 years.
Most Consumer Proposals involve a monthly payment anywhere from 1 year (12 months) to 5 years (60 months). I would suggest that 36 to 60 months is the norm. Consumer Proposals offer a great deal of flexibility with respect to payment terms. For example, a self-employed farmer may find it more compatible with his cash flow to file a proposal involving semi-annual or annual payments whereas a wage-earning individual would likely prefer monthly payments. A seasonal work could do a proposal making higher payments in their working months and lower payments when they are not. A Consumer Proposal may also be paid with assistance from family members, by sale of assets, or other means.
A Consumer Proposal can include provision for early payment such that there is no penalty for completing a proposal earlier than expected.
How is a Consumer Proposal different from other types of debt reduction programs?
A Consumer Proposal is a formal, legislated option and as such it is the only proposal available in Canada that provides a legal stay of proceedings that protects you from garnishment, harassing calls and other collection efforts.
Once accepted, a Consumer Proposal is legally binding on all unsecured creditors. This is different from an informal, non-legislated proposal filed through a debt management company where a creditor who does not like the proposal terms can continue their collection efforts.
Brad Milne, CIRP