How does consumer proposal work?

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A consumer proposal is a friendly negotiation to settle debts for less with creditors. It begins with a Licensed Insolvency Trustee assessing your finances. If suitable, they file a proposal, pausing creditor actions. Creditors have 45 days to approve, leading to structured payments and debt resolution.

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Consumer Proposal Question

How does consumer proposal work? Can you explain how consumer proposals work as a way to deal with debt?

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

Consumer Proposal Answer

A consumer proposal is essentially a friendly negotiation with your creditors, allowing you to settle your debts for less than you owe. How does this work? Well, you start by chatting with a Licensed Insolvency Trustee. Together, you’ll take a close look at your debts and income to see if a consumer proposal is your best bet. If it seems like a good fit, the LIT crafts a proposal highlighting repayment terms you can genuinely handle. Once that’s done, they file the proposal with the Office of the Superintendent of Bankruptcy. Bonus: this grants you a little breathing room from pesky creditor actions while the proposal is in the works.

Next, creditors have a 45-day window to either thumbs-up or thumbs-down the proposal. If enough say yes, you stick to making those regular, often interest-free, payments as agreed. Along the way, you’ll also get some financial counselling, which is mandatory but super helpful. Once you’ve checked off all the payments, you’ll receive a certificate of completion, officially wiping out the debts wrapped up in the proposal. This route is a smart alternative to declaring bankruptcy, giving you a chance to manage your debt while keeping some of your stuff intact.

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal is a formal insolvency process in Canada that allows individuals to negotiate a settlement with creditors to pay back a portion of their debts over a specified period. It is governed by the Bankruptcy and Insolvency Act (RSC 1985, c 11) and detailed regulations.

To initiate a consumer proposal, an individual must work with a licensed insolvency trustee (LIT), who will file the proposal with the Office of the Superintendent of Bankruptcy. The proposal outlines the terms, including how much the debtor can pay and over what period, usually up to five years.

Once filed, the proposal is presented to creditors who have the right to accept or reject it. A majority vote from the creditors is required for the proposal to be accepted. If accepted, the debtor is protected from creditor actions, and once completed, they are discharged from the remaining debt.

For more specific legal definitions and processes, refer to the Bankruptcy and Insolvency Act, particularly sections concerning consumer proposals, such as Section 50.4, which details the proposal process, and the regulations under the C.R.C., c. 369 and SOR/2007-256.

From: OSB Helper

Related Questions to Debt Relief

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 the process of filing a consumer proposal?

A consumer proposal involves selecting a Licensed Insolvency Trustee, assessing your debt, preparing the proposal, filing it with the federal government and court, and obtaining creditor approval[1][4][5].

2. How long does it take to complete a consumer proposal?

A consumer proposal typically takes up to five years to complete, during which you make monthly payments as agreed upon in the proposal[1][4][5].

3. What are the eligibility criteria for a consumer proposal?

To be eligible, you must be insolvent (unable to pay your debts as they come due) but financially capable of making monthly payments under the terms of the proposal[5].

4. How do creditors vote on a consumer proposal?

Creditors have 45 days to vote on the proposal; if the majority of creditors (by dollar value of the debt) approve, the proposal is accepted, and all creditors are bound by its terms[1][4][5].

5. What happens to my credit score if I file a consumer proposal?

Filing a consumer proposal creates a permanent public record and negatively impacts your credit score, although it is generally less severe than the impact of bankruptcy[1][4][5].

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

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