Consumer Proposals...An Alternative to Bankruptcy in Ontario

What is a Consumer Proposal?

A consumer proposal is a deal you make with the people you owe money to (your creditors).

Here's a typical example:

Bill and Laurie Jones have four credit cards with total balances owing of $40,000. They both have good jobs, but they do not earn enough to pay their regular monthly living expenses (rent, food) and to make the required minimum payments on their credit cards. When Bill was laid off for four months last year they got behind, and now they can't catch up. The credit card companies are threatening to sue them and garnishee their wages.

A consumer proposal may be the perfect solution for Bill and Laurie. It may be possible for them, with the help of their trustee who will act as the Proposal Administrator, to negotiate a payment plan where they pay $300 per month for the next five years, or $18,000 in total, in full satisfaction of their debts. Once they have made all of their payments, their remaining credit card debt is eliminated.

The creditors accept the consumer proposal because it's a better option than John and Jane filing bankruptcy in Ontario, and it's a great solution for John and Jane because now they only have to worry about one, affordable monthly payment.

Please note that the story of Bill and Laurie is just an example. Everyone's situation is different. The payments required in a proposal will depend on your monthly income, the level of your debts, the size of your family, and any assets you may own, so a consultation with a licensed trustee is essential to review your specific case. (Click on the links on the left hand side of this page to find a trustee in your city).

What are the standard consumer proposal terms in Ontario?

In Ontario, and throughout Canada, the standard consumer proposal terms are as follows:

	Maximum period is 5 years;
	If the consumer proposal is by a majority of your creditors (50% +1 based on dollar value) it is deemed to be accepted by ALL of your creditors (so even if every creditor doesn't agree, it is still binding on all unsecured creditors);
	Interest is frozen at the date you file;
	You can negotiate to repay only a portion of the debt you owe;
	Wage garnishments (except for support and alimony) are immediately stopped;
	Upon the completion of your consumer proposal, all of the debts included in the proposal are discharged (eliminated).

Should I file a consumer proposal, or go bankrupt?

This is a difficult question, and will depend on your individual circumstances. In general, if you have assets that you would lose in a bankruptcy (such as a house or a car), a consumer proposal may be the best option. In addition, if you have the income to support at least partial payments to your creditors, a proposal is often the best option.

However, if your future income is uncertain (because you expect to be laid off or have your hours reduced), or if you don't own any assets, personal bankruptcy may be the best option.

What are the chances that my creditors will accept a consumer proposal?

In most cases a reasonable proposal will be accepted by your creditors. Creditors want to recover as much as they can, but they also know that if they say no to your proposal, you may go bankrupt. Since they don't want to risk getting even less in a bankruptcy, if the proposal offers them a greater return than a bankruptcy, they will generally accept a reasonable proposal.

How long does the proposal process take?

Once the consumer proposal is filed, your creditors have 45 days to vote for or against your proposal. If a simple majority (50 % +1 based on dollar value) vote for your consumer proposal, it is deemed to be accepted by all of your creditors. Fifteen days after the creditors have accepted the proposal, if there are no objections, your proposal will be approved by the Court. Once the proposal receives court approval, it becomes a binding contract between you and your creditors.

What happens if my creditors vote "no" to my consumer proposal?

If less than 50% vote no, your proposal will be accepted.

If more than 50% vote no, you must either modify the terms of the proposal to get the creditors to accept it (i.e. offer them more money), or the proposal will be rejected.

If your consumer proposal is rejected, you could attempt to deal with your creditors on your own, or you could decide to go bankrupt.

What happens if I miss a payment on my consumer proposal?

If you miss three month's worth of payments, your proposal will be automatically annulled by the Court, meaning the deal is off, and your creditors can now pursue you for any amounts that remain owing.

If you miss one or two payments the trustee will add the payments on to the end of your proposal. It is important when creating a proposal to review your budget carefully to ensure that you will be able to make the payments under your proposal.

How does a consumer proposal impact on my credit rating?

Most credit reporting agencies in Ontario record a consumer proposal as an R7, meaning you have made a settlement with your creditors. (Perfect credit is an R1, and a bankruptcy is an R9). The note indicating you have filed a consumer proposal will remain on your credit report for three years after all payments in the consumer proposal are completed.

What does a consumer proposal to cost?

The amount you pay in a consumer proposal depends on a number of factors, including your income and ability to pay. All trustee fees are legislated by the federal government, so the amount your trustee will receive for administering the proposal will come out of the amount you pay each month. In effect it is the creditors that are covering the cost of your proposal.

I think I should file a consumer proposal; what's my next step?

If you are experiencing financial difficulty, we suggest you contact a licensed trustee to discuss whether a consumer proposal is an alternative to bankruptcy in your situation.

Our consumer proposal administrators and bankruptcy trustees will assess your situation and help you decide which option is right for you, and your family. The first meeting is free, and may help you to resolve your problems before they get out of hand.

If you think you're in trouble - contact a proposal administrator today.