Who is eligible for a proposal?
In order to file a Consumer Proposal, your debts must be less than
$250,000 in total. Secured debts (mortgages on your principal residence
and vehicle leases) are not included in this $250,000 figure, but
all other debts must be included. If your debts exceed $250,000
you can still file a proposal, but it falls under the division
1 proposal rules, which are discussed in
another section of our website.
How does a consumer proposal help me?
As soon as a consumer proposal is filed by the administrator, the
rights of the creditors to start or continue any legal or collection
procedures against you are suspended. In other words, if a creditor
is threatening to garnish your wages or seize your assets, they
will not be able to do so any longer, regardless of whether or not
they have already started a legal action.
The filing of the consumer proposal gives you time to deal with
your creditors over a long period of time – up to a maximum
of five years. Interest stops immediately upon filing of the consumer
proposal. It is quite normal that you and the administrator negotiate
a reduction in the principal amount of the total debt, which is
paid over the period of time – the length of which is negotiated
with your creditors. Ultimately the amount that is payable each
month and the number of months that this amount is payable is based
on many factors such as:
- your income
- the income of other members of your family that is contributed
to family living expenses
- the value of any assets that you have that could be vulnerable
to creditors if they reject the proposal (equity in house, cottage,
boats, cash surrender value of life insurance, RRSP, RESP, etc.)
A variation of the “normal” proposal is to offer to
the creditors a lump sum “advance” payment coming from
refinancing your house (via a second mortgage) or borrowing against
life insurance and adding a small monthly payment thereafter from
your monthly income. This makes the proposal much more attractive
to the creditors because of the lump sum payment. The downside is
that you, the debtor, pay interest on the money borrowed for the
front payment, but this is offset by the lower payments you make
during the proposal.
Your Job: Your employer cannot fire, suspend or lay you off because
you filed a consumer proposal.
Rights of Creditors: Creditor’s rights (who have no security)
to start or continue any lawsuit or collection procedures are suspended
immediately upon the filing of the proposal. Creditors who have
security are allowed to deal with the security outside of the proposal.
Landlords: A landlord cannot evict you simply because you filed
a consumer proposal.
Utilities: Services for water, hydro fuel, and telephone cannot
be disconnected simply because you owe those providers money when
you filed the consumer proposal, however the utility companies have
no obligation to provide future services. There are two practical
solutions. The first is to offer the utility company a security
deposit for future services. The utility company will be obligated
to pay you interest on the security deposit (which is good) but
the amount of the security deposit is usually equal to or higher
than the debt owing in the consumer proposal (which is bad). Also
there is the added problem of where the cash comes from for the
security deposit. The second, and more common solution, especially
for small ongoing services, is to leave the utility debt out of
the consumer proposal and pay them on an ongoing basis.
If you are moving at the time of the filing of the consumer proposal,
you might have the best of both worlds by putting the old utilities
in the consumer proposal and signing new agreements with new utilities
at your new home.
Personal possesions: The Bankruptcy
and Insolvency Act is Federal legislation but a specific
provision allows Provinces to exempt certain assets from seizure
by creditors. All provinces have allowed certain assets up to a
specified dollar amount to be exempt. These assets normally include
clothes, furniture, motor vehicles, tools of trade, etc. Note that
if you have given anything as specific security to a creditor you
may have waived your rights to the Provincial exemption.
How does a consumer proposal get filed?
As in most legal proceedings, there are several forms that must
be completed. A consumer Proposal in Canada can only be filed through
a Trustee in Bankruptcy who is licensed by the Office
of the Superintendent of Bankruptcy. Even if you have
had the assistance of another financial advisor, the Trustee in
Bankruptcy assumes the responsibility for the consumer proposal.
This involves making sure that all documents are properly completed,
that the terms are fair to both you and your creditors, filing the
documents in court, notifying the creditors and tabulating the votes
on the consumer proposal. You should be aware that there is no obligation
by the creditors to accept your consumer proposal – they can
vote yes or no – or – they can propose a counter offer,
which you can in turn accept or refuse. There is often much negotiation
between you and the creditors before the consumer proposal is approved.
Once the proposal is approved your only obligation is to pay the
amount stipulated in the consumer proposal. The creditors, who stopped
all collection actions when the consumer proposal was first filed
in court, simply wait for the distributions to be made to them by
the Trustee in Bankruptcy who acts as the administrator of the consumer
What happens after I sign the consumer
Shortly after you sign the papers the Administrator of the Consumer
Proposal will send a report to the Official
Receiver at the Office of the Superintendent of Bankruptcy in Ottawa.
The report contains information about your consumer proposal (list
of assets, liabilities, names of creditors, etc.) and concludes
with the opinion of the Administrator as to whether or not your
consumer proposal is fair and reasonable and whether or not the
Administrator believes you will be able to complete the consumer
At the same time the Administrator sends a report to each of your
creditors. The creditors are asked to complete a Proof of Claim
form and return it to the Administrator with their vote to accept
or reject the consumer proposal. If the creditors do not respond
to the administrator within 45 days after the consumer proposal
is filed, they are deemed to have accepted the consumer proposal.
Once the creditors have accepted the proposal, the Administrator
will proceed to obtain the approval of the court for the consumer
proposal. In most cases the court approves of the consumer proposal
15 days after the creditor approval. After court approval, your
only responsibility is to follow the terms of the consumer proposal
and attend two (2) manditory counselling sessions. The purpose of
the counselling sessions is to assist you in rebuilding your credit
and help you to understand how you got into financial trouble in
the past. If you fail to attend either counselling session he/she
is not entitled to a Certificate of Full Performance (Discharge).
What if I miss payments?
Once your consumer proposal has started, if you miss three (3) payments
the consumer proposal is annulled and all legal rights of the creditors
are restored. The amount that you owe each creditor is the original
amount that you started with less any monies that the creditors
received during the consumer proposal before you missed the three
(3) monthly payments.
If you find that your financial situation has changes, contact
your trustee immediately. It may be possible to amend your consumer
proposal by reducing your monthly payments to fit your new circumstances.
I've finished my consumer proposal:
When you have completed all of the terms of the consumer proposal,
the Administrator will give to you a Certificate of Full Performance.
A copy is also sent to the Official Receiver. You are now relieved
of all debts that were included in the consumer proposal.
You should send a copy of this Certificate to the credit bureaus
(Equifax and TransUnion of Canada)
so that they can update their records. Instructions will be given
to you at that time by the Administrator.