Learning about debt relief doesn’t have to be complicated. Read on for some simple answers to the questions we hear most.
In Canada, a consumer proposal is one of several debt solutions available to help people get out of debt. However, as the number one alternative to bankruptcy, a consumer proposal is becoming the safest and most common route to debt relief.
A consumer proposal is a good option for those struggling with their monthly debt payments and who prefer to avoid bankruptcy, which could hurt their credit more. If your proposed monthly payments in the consumer proposal are similar to or less than you currently pay every month, you will likely be successful.
If you keep making your mortgage payments on time, nothing should happen to your current mortgage when you file a consumer proposal. You don't have to sell your home, and your lender won't come after you unless you stop making your payments.
There is a huge distinction between renewing an existing mortgage while in a consumer proposal and refinancing one. Renewing your mortgage with your existing lender during a Consumer Proposal should be straight forward and fairly automated. The only difference is that you will not be able to move the existing mortgage to a different bank and your ability to negotiate the interest rate will be negligible.
The cost to file a consumer proposal in Canada includes several fees, but ultimately, they are paid by the creditors, not the individual. The main fees include a $750 payment on filing, another $750 on court approval, and a 20% deduction from each creditor distribution. Additionally, there's a filing fee with the Office of the Superintendent of Bankruptcy (OSB) and mandatory credit counselling costs.
There are no upfront fees to file a consumer proposal. All costs, including those for the Licensed Insolvency Trustee (LIT) and the government, are included in your monthly payments. The fee you pay is a percentage of the money paid to your creditors, not a separate fee you pay upfront.
An individual with unsecured debts can file a consumer proposal if they are unable to repay those debts as they become due. The total amount of unsecured debt must be more than $1000 and less than $250,000. This excludes debts like a mortgage on their principal residence. Essentially, anyone facing financial hardship due to unsecured debts within the limit can explore a consumer proposal.
The process time from filing a consumer proposal to having a court approval 'stay of proceedings' is usually completed within 60 days.
No, filing a consumer proposal generally will not affect your employment. The Bankruptcy and Insolvency Act protects individuals from being fired, suspended, laid off, or disciplined solely for filing a consumer proposal.
Yes, a consumer proposal generally requires the inclusion of all unsecured debts. This includes debts like credit cards, personal loans, student loans, CRA debt, but excludes secured debts like mortgages or car loans. The proposal also must include all creditors, meaning you can't pick and choose which debts to include.
Creditors often accept consumer proposals because they typically receive more than they would in bankruptcy, even though you keep your assets. Your creditors agree to accept a payment plan based on your income.
Upon filing a consumer proposal, you receive immediate legal protection through a stay of proceedings. This court-ordered protection stops creditors from taking legal action against you or attempting to seize your assets. Wage garnishments must stop, and any existing legal proceedings by unsecured creditors are suspended.
Unsecured debts include:
Secured debt includes a mortgage or car loan and cannot be included in a consumer proposal
If you miss your monthly payments and don’t attend credit counseling sessions according to your consumer proposal’s terms, the agreement can be terminated.
You are legally allowed to miss two payments during your proposal, but once you miss a third payment, your consumer proposal is automatically terminated. You’re now required to pay the full amount of your debts under their original terms. Additionally, your debts will once again accumulate interest if applicable.
When your consumer proposal is annulled, you should speak with your LIT about resolving the issue.
If your consumer proposal is denied, you can refile with more reasonable terms. Usually, this involves repaying a larger percentage of the total debt and/or paying it off in a shorter timeline than originally proposed. Your LIT will help you draft up a better offer that still aligns with your budget and needs.
If at least 51% of your total debt balance votes to reject your proposal, your proposal will be rejected.
The big question: What happens once the consumer proposal process is over and your debt is paid off?
Yes, you can with a secured credit card. As long as you can reliably pay off your balance in full, you can rebuild your credit slowly during the consumer proposal process. Nevertheless, we recommend prioritizing repaying your debt before considering how to rebuild your credit. Once you eliminate your debt through your consumer proposal, you can jumpstart credit rebuilding.
Consumer proposals do impact your credit rating. That doesn’t mean you should avoid pursuing a consumer proposal in favour of a better credit score. Suffering from high debts and money stress to avoid a temporary hit on your credit is a dangerous practice. It often results in you never getting out of debt.
What’s important to remember is that the impact your consumer proposal has is temporary. Rebuilding your credit will be much easier once you’ve paid off your debt.
Not immediately. Once your consumer proposal is completed, it will stay on your credit report three years after the fact. That being said, timely and regular payments toward your consumer proposal debt can have a positive impact on your credit score over time. However, until you’ve completely paid off your proposal debt, it will still be hard to reach a good credit rating.
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