Consumer Proposals Kitchener

A consumer proposal is a legal agreement between an individual who owes money (the “debtor”) and the people that are owed money (the “creditors”).  A consumer proposal is filed pursuant to the Bankruptcy and Insolvency Act with the federal government and receives court approval. 

In more general terms, a consumer proposal is an offer you make to your creditors to pay a portion of your debts.  It is an option that people can turn to when they find themselves unable to pay their debts in full, but want to avoid personal bankruptcy. 

 What are the benefits of a Consumer Proposal?

Like bankruptcy, a consumer proposal gives you legal protection from your creditors.  It will stop a wage garnishee and collection calls.

Unlike bankruptcy, you get to keep all of your assets (eg. house, car, investments, etc.) and the payments don’t go up if your income increases (called surplus income).

Why would my creditors agree to a Consumer Proposal?

A consumer proposal is not automatic.  Your creditors have to agree to your offer for it to become legally binding.  Many people ask why a creditor would agree to allow you to pay less than the full amount of what you owe.  If you are offering more money than what your creditors would receive out of bankruptcy, most times they will say yes.

Some people ask why they would file a consumer proposal if it means paying more than bankruptcy.  One reason is that bankruptcy could mean losing important assets like your house or car.  Bankruptcy could also mean the uncertainty of surplus income.  A consumer proposal is simply a different route to getting a fresh start from your debts.

Who Can File a Consumer Proposal?

To be eligible to file a consumer proposal, your total consumer debt has to be $250,000 or less.  “Consumer debt” is defined by all debt other than those secured by your principal residence (i.e. your mortgage).  The minimum amount is $1,000 of debt.  Furthermore, you have to be unable to pay your debts.   

How much does a Consumer Proposal cost?

The payments a person makes into a consumer are referred to as the “terms.”   For the creditors to agree to a consumer proposal, the terms have to provide more money in total to the creditors than if you filed for bankruptcy.  Why would somebody agree to $5,000 in a proposal if they would get $10,000 out of bankruptcy?

A big part of talking about a consumer proposal is understaanding what would happen in bankruptcy, even if there is no chance that you will file for bankruptcy.  The trustee will do an assessment of what assets would have to be sold and estimate the amount of surplus income that would have to be paid.  To be clear, this assessment is theoretically what would happen if you filed for bankruptcy.

What about the trustee’s fee?

The trustee is not allowed to charge you a “fee.”  It’s not like going to a lawyer or the dentist where they give you an invoice after the service is provided.  The “fee” for your trustee gets paid out of the total money you pay into the proposal.  There is no extra cost. 

How do I get started?

Only a trustee in bankruptcy is licensed by the government to administer consumer proposals.  A trustee receives his or her license from the federal government after undergoing a rigorous education and training process. 

A trustee is required to review with you all of your options for dealing with your debts.