How does a consumer proposal work?

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A consumer proposal is like a debt settlement handshake, letting you pay less than you owe. A Licensed Insolvency Trustee (LIT) helps you craft this budget-friendly offer, shielding you from creditors once filed. Enjoy 4-5 years of peace while paying and keeping your stuff. It’s a good alternative to bankruptcy! Beware though, not all Trustees can be trusted.

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Consumer Proposal Question

How does a consumer proposal work? I’ve heard consumer proposals can help with debt, but I don’t know how they actually work.

From: Anonymous Question
Location: Burlington, Ontario (ON)
Category: consumer proposal

Consumer Proposal Answer

Think of a consumer proposal as a friendly pact between you and your creditors to settle your debts for less than what you owe. It’s like getting a deal, right? A Licensed Insolvency Trustee (or LIT for short) is your go-to person in this journey. They’ll take a good look at your financial situation and help you draft a proposal that fits your budget. Once filed with the Official Receiver, consider yourself under a financial umbrella, safe from any creditor storm—think no more wage garnishments or lawsuits raining down on you. Creditors then have a chill 45 days to say yay or nay. If they stay silent, you’re good to go! This setup usually lasts about 4 or 5 years, where you’ll make regular payments based on what you agreed on, keeping legal cover and often your cherished stuff intact.

Once the green light is on for your proposal, you’ll need to keep up with the payments and attend a couple of handy financial counseling sessions—think of them as financial wellness spa days. When you check off these boxes, you get a shiny discharge certificate, waving goodbye to the debts included in the proposal. Just a heads-up, though—a consumer proposal might take a toll on your credit score and will etch a record of your financial journey for posterity. But fear not, as it beats the bankruptcy blues by letting you hold onto your assets, making it a go-to solution for many Canadians finding their way through the debt maze.

From: Insider Adam

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal is a legally binding agreement between a debtor and creditors that allows the debtor to repay a portion of their debts over a set period, typically up to five years. It is designed to help individuals avoid bankruptcy while addressing their debt issues.

The process begins when a licensed insolvency trustee is appointed to help the debtor prepare the proposal. The trustee will assess the debtor’s financial situation, including income and expenses, and negotiate with creditors to come to an agreement on the repayment terms.

Once a proposal is drafted, it is submitted to the creditors for approval. For the proposal to be accepted, more than 50% of the creditors (by dollar value) must vote in favor. If approved, the debtor makes regular payments based on the terms agreed upon, and the creditors cannot take further legal action to collect on the debts included in the proposal.

If the proposal is rejected, the debtor may have to consider other options, such as personal bankruptcy, but if it is accepted, it provides protection from creditor harassment, and the debtor can rebuild their credit over time.

This process is regulated under the Bankruptcy and Insolvency Act (RSC 1985, c 11) and the Consumer Proposal Regulations (SOR/2007-256).

From: OSB Helper

Related Questions to Debt Settlement

Here are the top 5 most frequently asked questions related to how a consumer proposal works, based on the provided sources and general online trends:

1. What is a consumer proposal?

A consumer proposal is a formal agreement between you and your creditors to settle debts without filing for bankruptcy, where you repay a portion of your debts over a specified period, typically up to five years[2][3][5].

2. Do I qualify for a consumer proposal?

To qualify, you must owe at least $1,000 and less than $250,000 in unsecured debt, have a stable income, and be a resident or have assets in the country[1][5].

3. How long does a consumer proposal stay on my credit report?

A consumer proposal appears on your credit report for either 3 years after completion or 6 years from the filing date, whichever comes first[1][3].

4. What are the benefits of filing a consumer proposal?

The benefits include keeping your assets, making one lower monthly payment, government program protection, creditor protection, early payment options, and avoiding bankruptcy[1][2][3].

5. How does the consumer proposal process work?

The process involves selecting a Licensed Insolvency Trustee, debt assessment, proposal preparation, filing the proposal, creditor voting, and implementing the agreed-upon monthly payments until the proposal is completed[2][3][5].

If you have a question about debt see our debt questions or ask your own debt related question.

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