Getting To Know The Consumer Proposal

If you’ve been struggling under the weight of overwhelming debt and have finally decided it’s time to take action and get control of your finances – congratulations! Taking the first step can be difficult and finding out your options can be daunting. In fact, the process can seem so daunting that many will simply assume a bankruptcy is their only route forward. While filing for bankruptcy may be a completely viable option for some, it’s not the only option out there. Speaking with a Licensed Insolvency Trustee will give you a better gauge as to where you’re at, where you want to be and what routes you could take to get there. For instance, one very common step towards tackling debt, is filing for a Consumer Proposal.

What is a Consumer Proposal?

The Bankruptcy and Insolvency Act (BIA), defines a Consumer Proposal as:

1. A plan to settle your debts with your unsecured creditors on a percentage of the total amount owing to your unsecured creditors; or,
2. A plan for an extension of time for payment; or,
3. Both.

Payments to the Consumer Proposal are made to the Licensed Insolvency Trustee (LIT) who filed the Proposal on your behalf. The LIT will distribute the funds on a pro-rata basis to all of your unsecured creditors.

What terms are included in a Consumer Proposal?

Pursuant to the BIA, a Consumer Proposal must provide that its performance is to be completed within five years. The Consumer Proposal must provide for payment in priority of all claims of preferred creditors and for payment of all prescribed fees and expenses of the LIT. The terms of the Consumer Proposal must also state the manner in which the LIT will distribute the available funds to the creditors in accordance with the terms of the Consumer Proposal.

How flexible is a Consumer Proposal?

Flexibility is one of the major advantages of filing a Consumer Proposal. A Consumer Proposal can provide you with the flexibility of repaying your settled unsecured debts with monthly payments based on your income and your particular circumstances. Interest stops accruing on the date your Consumer Proposal is filed with the Office of the Superintendent of Bankruptcy (OSB). The repayment period is flexible and may be up to, but cannot exceed, five years.

What important steps should you take after filing a Consumer Proposal?

Get a fresh start by making a new commitment to yourself. Develop new habits and goals by developing a financial plan and making budgeting and savings a part of your everyday life. Aside from helping reduce financial stress, creating a monthly budget can help you visualize where you are spending your income and how much you are spending. There are many budgeting tools available on the internet to help you create a budget.

Think of ways to pay yourself first. Incorporating a savings plan into your monthly budget can help you set and reach your financial goals. If you are coming up short on your savings, adjust your budget so that you can reach your savings goals. If you are part of a group plan at work that matches employee contributions, maximize your employer match. Employee-employer contributions to a group plan will help your money grow faster. For example, an employer may offer a match on RRSP contributions where you can contribute a percentage of your pay and they will match your contribution either at 100% of what you contribute or at a lower percentage. Another idea would be to include any tax refunds into your financial plan. The tax refunds may then be used to pay down the Consumer Proposal or alternatively, the refunds may be invested for short-term or long-term goals.

Ways to rebuild your credit after filing a Consumer Proposal?

In the province of Ontario, Equifax will keep a record of a Consumer Proposal for a period of three years from the date of full performance of the Consumer Proposal. TransUnion will keep a record for a period of 6 years from the date of filing the Consumer Proposal with the OSB or three years from the date of full performance of the Consumer Proposal. You do not need to wait for the expiry of the above time periods before being able to rebuild your credit.

One good way to rebuild your credit after a Consumer Proposal is to apply for an unsecured credit card, use the credit card for purchases you would have normally paid for in cash or by debit and upon receipt of your monthly credit card statement, make payment to credit card on time and preferably in full. You should not be paying less than the required minimum as per the credit card statement. If you cannot obtain an unsecured credit card, consider applying for a secured credit card by providing the issuer with a security deposit equal to the credit limit on the card. If you opt for a secured credit card, you should confirm with the issuer that the card will be reported at the credit bureau(s) in the same way as an unsecured credit card.

Other ways to rebuild your credit include: avoid maxing out on your credit card(s), use open account(s) from time to time to keep them active, avoid late or missed payments, avoid withholding payments to a lender due to a dispute (i.e. pay the debt first and dispute the matter later) and limit the number of times you apply for credit and the number of inquiries you allow on your credit file.