What You Should Know About Consumer Proposals

Finding a debt solution that works for you doesn’t have to be difficult. There are numerous debt management options that can accelerate the time it takes to become debt-free and regain control of your credit.

Filing a Consumer Proposal is often one of the best ways to navigate your way out of debt. Like any financial undertaking, it is important to be well-informed about what the process means for you.

That’s why we are happy to share everything there is to know about filing a Consumer Proposal in Alberta, including the answers to common questions we receive from clients. Get on your way to a debt-free future and learn more about your options today.

What is a Consumer Proposal?

A Consumer Proposal is a legal debt settlement agreement between you and your creditors that is facilitated by a Licensed Insolvency Trustee (also known as a Trustee, or LIT).

Who is a Consumer Proposal For?

 Individuals who do not have the ability to pay both the required interest and principal to become debt free on their own. In Canada, there are some basic requirements.

  • You must have Canadian debts or reside in Canada
  • You must be considered insolvent, meaning:
    • You have more debt than you can repay on your own, or;
    • You don’t have the means to pay your debts on time;
  • Your total debt including secured debt is less than $250,000.00, excluding the mortgage on your principal residence

What if You Owe More Than $250,000.00?

If you owe more than $250,000 in debts, you could be eligible for a Division I Proposal. Contact us to discuss what this option means for you.

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What if You Owe More Than $250,000.00?

If you owe more than $250,000 in debts, you could be eligible for a Division I Proposal. Contact us to discuss what this option means for you or check out this link to learn more about the process of filing a Division I Proposal.

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Advantages of a Consumer Proposal

There are numerous advantages to a Consumer Proposal, which make it an attractive option for those facing serious debt.

The goal of a negotiated settlement is to reduce the amount you’re required to repay. Oftentimes, there is a substantial reduction in the amount repaid as compared to the amount owed, but every situation is different!
You keep and retain control of all your assets, including your car, home equity, tax refunds, and future windfalls.
With a proposal, all eligible unsecured debt is bundled into one fixed, affordable, monthly debt payment, even if you owe multiple creditors. For those with many lines of credit to pay off, this relieves the stress of multiple payments and creates an organized, simple schedule to follow.
Interest stops accumulating as soon as you file your proposal, so the total debt amount is “locked in.” This is a major advantage over a “debt consolidation” strategy where you are subject to significant interest payments each month.
Once the proposal is accepted in a vote by the majority of the unsecured creditors, it becomes legally binding on ALL your unsecured creditors – even those who did not vote in favour of it.
Any previous creditor timelines for repayment become null and void. According to the terms of the proposal, you will have 5 years to repay.
It stops all creditor actions, including calls, garnishments, legal action, and creditor harassment.
With a proposal, there is less long-term impact on your credit rating, as compared to filing a 2nd bankruptcy, if you have a previous bankruptcy.

There are also disadvantages to a Consumer Proposal. The biggest one is that it typically takes longer to complete as compared to bankruptcy. However, this can mean that the monthly payments are lower than what you would be required to pay over a shorter period in a bankruptcy.

Want to Learn More? Talk to a LIT Today

Who Do You
Talk To?

A Licensed Insolvency Trustee also known as a Trustee or his administrator, licensed by the Office of the Superintendent of Bankruptcy. This means Trustees (including those at BNA) are federally regulated with oversight from various regulatory bodies to ensure we are abiding by a strong code of ethics. Trustees are the only individuals licensed to file and administer Consumer Proposals and Bankruptcies. 

The Trustee is responsible for providing a detailed review of your specific circumstances and educate you on your options for debt relief. Most Trustees provide an initial consultation for free. It is important to be cautious if you are being asked for payment, as this could mean you are not dealing with a Trustee, but rather an unlicensed debt consultant. 

Check out this news release from the Government of Canada for considerations when seeking help with your debt.

Did you know?

Trustees are officers of the Canadian Court. It is a Trustee’s duty to carry out legislation as set out under the Bankruptcy and Insolvency Act. This gives them the legal power to work with creditors and clients to create legally-binding agreements. Trustees ensure that the rights of both parties are protected, acting as an impartial “referee” between the client and their creditors.

They are NOT your legal representative or fiduciary (a person who holds a legal or ethical relationship of trust with one or more other parties).

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What Type of Debts are Eligible
for a Consumer Proposal?

While there are many different types of unsecured debts, some are more common than others. While it’s not always black-and-white which debts can be included in a Consumer Proposal, the following examples of unsecured debt are typically eligible: 

Credit Card Debt

Personal And/Or Bank Loans

Unsecured Lines Of Credit

Payday Loans

Insured Mortgage Deficiencies

Canada Revenue Agency (Tax) Debt

Vehicle Loan Shortfalls

Student Loans*

Statements of Claim/ Judgements*

Past Due Child/Spousal Support*

*Conditions and restrictions apply. Some of these debts will survive any insolvency process, but your Trustee will explain what pertains to your unique circumstances.

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What Type of Debts Aren’t Eligible?

Although it is a very useful solution, there are specific types of unsecured debts that a Consumer Proposal cannot service. This includes:

Ongoing amounts owing for child and/or spousal support, and any amount that survives for past due amounts.

Student Loan amounts where the debtor has not been out of school for more than 7 years.

Debts that arose from fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity.

Court-imposed fines/penalties (eg. speeding tickets)

Fines, penalties or restitution orders imposed by the Court in respect of an offense.

Awards for damages in respect of bodily harm, sexual assault or wrongful death.

Ongoing amounts owing for child and/or spousal support, and any amount that survives for past due amounts.

Student Loan amounts where the debtor has not been out of school for more than 7 years.

Debts that arose from fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity.

What Can Be Negotiated With Creditors?

Your Licensed Insolvency Trustee will review your unique circumstances and recommend a reasonable starting offer for your Consumer Proposal based on various factors such as your income, assets, and household size. Your monthly budget is also important to assess how much money you can allocate to debt repayment each month for the next 5 years.

This monthly payment will cover all of your unsecured debt, and eliminate the payments you are currently making. You are required to maintain your secured debt payments, such as your mortgage or car payments, if you wish to keep those assets.

Payments are made to your Trustee and held In Trust and are generally distributed to your creditors once a year. Each creditor will receive a percentage of the amount In Trust, based on the amounts owed to each creditor.

What factors does an LIT consider in structuring a consumer proposal payment amount?

Your Income

Your Assets

Size of Household