When Should You File A Consumer Proposal

2016-02-12   minute read

Michelle Scheller

Consumer Proposal

Frustrated and overwhelmed with debt? Given today’s difficult economic climate, you’re not alone. The good news is, bankruptcy is not your only option. Depending on your personal circumstances, a Consumer Proposal may be the right debt solution for you. A Consumer Proposal is an alternative to filing a bankruptcy and is governed by Canada’s Bankruptcy and Insolvency Act. It is a legally binding contract with all of your unsecured creditors and must be filed through a Licensed Insolvency Trustee.

A Consumer Proposal provides you protection from debt collectors and allows you to offer to pay a portion of what you owe. If your offer is accepted, your creditors agree to forgive the rest. The maximum repayment period is five years.

In order to be eligible to file a Consumer Proposal you must be insolvent, meaning you are already in financial trouble and cannot pay your debts as they become due. Your total debt, not including your principle residence must be less than $250,000 and you must have an ability to offer a reasonable repayment plan to your creditors. This can be in the form of payments or a lump sum offer if you are potentially able to access funds from a family member or a loan. Consumer Proposals offer the flexibility of tailoring your payments to your individual needs and circumstances. For instance, a Consumer Proposal payment plan could be developed to work around a seasonal income.

A Consumer Proposal is offered to all of your unsecured creditors, which means you cannot pick and choose which ones you want to include. Debts owing to Canada Revenue Agency are also included as well as student loans if they fit the criteria. Upon filing, the creditors are required to deal with the Trustee, your proposal administrator. In a Consumer Proposal, your assets remain under your control as opposed to the treatment in a bankruptcy.

The viability of the proposal option for you depends on your monthly income and total amount of your unsecured debt. The benefits to you include the ability to remain in control of your assets and have a dependable, fixed payment. If your income increases, your payments remain the same as opposed to a bankruptcy, where income can impact your monthly payment requirements in certain circumstances.

The benefits to your creditors, are that although they are accepting less than the full amount, they are still receiving more than what they would get in the event you had to file a bankruptcy. Ultimately, this could be a compromise that works for both you and your creditors. If you wish to explore this option further, please contact your local MNP trustee for a free, no-obligation consultation.

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