What happens to my savings account during a Consumer Proposal?

Many Canadians are struggling to keep up with the rising cost of daily essentials or to cover unexpected expenses. You may be feeling overwhelmed by debt and financial stress — and wondering if a Consumer Proposal could give you a fresh financial start. However, you may be concerned about what will happen to the funds in your savings account during the process. 

The short answer is that the funds in your savings account can be protected during a Consumer Proposal. However, this depends on what you and your unsecured creditors agree to during the negotiation process. Let’s discuss what a Consumer Proposal is and take an in-depth look at the factors impacting what happens to your savings account during the process. 

What is a Consumer Proposal?

A Consumer Proposal allows you to settle your unsecured debts through paying all or a portion of that debt to your creditors. Unsecured debts are any types of debt not secured by an asset — including credit card debt, personal loans, and payday loans.

Other unsecured debts that a Consumer Proposal can help discharge include student loans if you have not been a student for at least seven years. It can also include income tax debt on amounts owing for personal income tax, GST debts, and Canada Child Benefits, CPP, or OAS overpayments.

A Consumer Proposal may be the right option for your situation if you:

• Have debt that totals less than $250,000, excluding the mortgage on your principal residence
• Need more time or a realistic plan to pay back your debts
• Want relief from accumulating interest and wage garnishments
• Want to keep assets that may not be exempt or protected in a Bankruptcy

The first step is to meet with a Licensed Insolvency Trustee to explore your debt relief options. If you decide a Consumer Proposal is the right choice for your specific situation, the LIT will help you prepare the offer you would like to present to your secured creditors to settle your debts. After the offer is accepted, you will make monthly payments to the LIT until your Consumer Proposal is paid in full.

What happens to my savings account?

LITs are called Administrators of Consumer Proposals, and their role is to administer the Consumer Proposal that you and your creditors agreed upon. They have no ability to seize and sell your assets unless this is offered as part of your Consumer Proposal.

However, a Consumer Proposal must offer your unsecured creditors a greater return than they would receive if you filed for Bankruptcy. Therefore, the LIT would use the amount in your savings account along with equity in your other assets to determine the amount available to your unsecured creditors in a Bankruptcy scenario.

After your equity in a Bankruptcy scenario has been established, the LIT will work with you to determine what amount you would like to offer your unsecured creditors in the Consumer Proposal. It is important to remember that the amount you offer must provide a better recovery to your unsecured creditors than it would if you filed for Bankruptcy.

A Consumer Proposal involves making monthly payments to pay off your debts over a period not to exceed 60 months. Consumer Proposals are tailored to your specific needs, and in some cases can include a combination of monthly payments and equity from your assets, such as the funds in your savings account. The options noted above are also available if you and your spouse file a joint Consumer Proposal.

However, unsecured creditors may require some — or all — of the funds in your saving account to be offered during the negotiation process. This will help accelerate your payments to reach the settled amount you agreed to in your Consumer Proposal. An LIT will help you navigate the negotiation process and guide you to the most beneficial outcome to settle your unsecured debts.

Achieve a fresh financial start

Contact an LIT if you are struggling with debt and financial stress. They will help you assess your current situation and review all your options so that you can choose the solution that works best for your needs. Together, we can help you achieve a fresh financial start.