11 things you might not know about Consumer Proposals

If you’ve been researching options to manage and overcome your debt, it’s likely you’ve already heard about Consumer Proposals and may even have a basic understanding of how they work. For instance, you’re probably aware Consumer Proposals

• Are a legal debt solution, regulated by the Government of Canada
• Consolidate debt into a single, affordable, interest-free monthly or lump sum payment
• Protect assets from seizure by creditors
• Are payable over a period of up to five years
• Immediately stop all collection activity, including harassing phone calls and garnishees
• May be filed by an individual who is bankrupt or insolvent
• Can resolve unsecured debts up to $250,000 (secured debt on a principal residence is not included in that total)

However, there are many other great features and benefits which make this debt solution unique among all others — and which perhaps don’t get the appreciation they deserve. Following are several of the most important Consumer Proposal facts that you may not know. 

1. No hidden fees

Unlike for-profit credit counselling programs, the fees and disbursements for a Consumer Proposal are set by law. All costs to administer the proposal are collected directly from the consumer’s lump sum or monthly payment(s). No hidden fees or extra costs to worry about.

2. No pre-payment penalty

Although a Consumer Proposal can be for a term of up to five years, there is no penalty for paying off a Consumer Proposal early.

3. Variable payments

A Consumer Proposal can be structured to accommodate higher payments during peak earning times and lower payments during lower earning times. This makes it a great option for individuals that work seasonally or whose income fluctuates.

4. Step up payments

For individuals who know their income will increase during the term of the Consumer Proposal, payments can start out lower and increase over time to mirror earnings.

5. Step down payments

Individuals who anticipate a downward change in income (e.g., retirement), can structure the Consumer Proposal so payments start out higher and decrease over time.

6. Lump sum proposals

Although monthly payments over the maximum five years is most common, it’s also possible to pay off a Consumer Proposal with a single lump sum payment. In this case, they could complete the process within six months start to finish. 

Typical ways people will fund a lump sum Consumer Proposal include borrowing from a friend or family member or refinancing their home / drawing from a home equity line of credit. It’s important to discuss this option with a Licensed Insolvency Trustee to determine whether it’s the best for you.

7. Payments from the sale of assets

A Consumer Proposal can include the sale of assets (e.g., house, automobile, investments, etc.) with all or a portion of the proceeds paid into the settlement. This can help repay the Consumer Proposal faster and/or make monthly payments more affordable.

There are several factors to consider before an individual promises to sell assets as part of a Consumer Proposal. These include any applicable tax consequences, and future need for those assets (e.g., retirement).

8. Amendment to an existing Consumer Proposal

It’s possible to amend an existing Consumer Proposal if there is a material change in circumstances (e.g., job loss, significant reduction in income, divorce, etc.). The creditors will vote ($1 owed = one vote) on whether they agree to the amended Consumer Proposal.

9. Tax debt is forgiven right up to the date that you file the Consumer Proposal

Any tax debt owing for the pre-proposal period of the tax year an individual files a Consumer Proposal is also dischargeable. The Administrator will help prepare and file a provisional tax return, so the individual doesn’t have to scramble to pay current tax debt while also making Consumer Proposal payments.

10. Binding on all creditors

A Consumer Proposal is accepted if the majority in dollar value of the creditor’s proven claims vote in its favour ($1 owed = one vote). All creditors are bound by the terms of the accepted Consumer Proposal, including those who voted against.

Creditors cannot pursue an individual outside of the Consumer Proposal for the amount they are owed simply because they voted against the offering. Any dissenting creditors may either submit a claim with the Administrator and participate in the Consumer Proposal or choose to walk away from the debt.

11. All debts are included

An individual filing a Consumer Proposal must disclose all outstanding debts for inclusion in the proceeding. This includes amounts owing to student loans, government debts, and debts owing to family and friends.

Even debts that do not get extinguished or that survive a Consumer Proposal (i.e., s. 178 debts) must be included:

• Fines or penalties imposed by the Court
• Damages awarded by the Court for bodily harm intentionally inflicted
• Child or spousal support
• Debts resulting from fraud, embezzlement, misappropriation, or defalcation
• Debts resulting from obtaining property by false pretences or fraudulent misrepresentations
• Student loan debt, if the debtor has not ceased to be a student for seven or more years

Is a Consumer Proposal right for you?

A Consumer Proposal is just one of several debt management options that may be available to you. It is certainly a powerful tool to help indebted Canadians achieve a financial fresh start. But it’s hard to know which strategy will be best for you without first considering your income and expenses, assets and liabilities, family situation, and several other factors.

A Licensed Insolvency Trustee is qualified to assess your debt and financial situation and provide unbiased advice about the various debt repayment strategies — including the merits, consequences, and costs of the various options. Schedule a Free Confidential Consultation with MNP today. We’ll make sure you feel supported, knowledgeable, and confident in finding the most appropriate debt repayment (or forgiveness) strategy for your unique financial situation.