Simply, a consumer proposal is a contract with your creditors, the people you owe money to, to repay a portion of the amount you owe them over a period of time. It is a legal process and as such, once you file a proposal there is a stay of proceedings in place and any garnishments are stopped and any legal action cannot continue. In addition, all your unsecured debts are frozen and interest stops.
Depending on the type of debts you have, the amount you owe and your budget, you may decide that the way to deal with your debts is to repay a portion of it through a proposal as an alternative to going bankrupt.
A proposal includes all your unsecured debts. For most people it is credit cards, lines of credit and personal loans that make up their debts. There are some debts you will include but will not get relief from once the proposal is completed. For instance, if you have student loans and they are less then 10 years old since you graduated or stopped being a student. Thus once your proposal is completed, the student loans will be owing.
In order to help you through the proposal process you will meet and work with a trustee to review your financial position and options for dealing with your debts. This meeting is a free consult and takes about an hour. In our Mississauga office, we will review the proposal option and see if it will work for you and your family.
The terms of the proposal contract can vary but generally are monthly payments over a period of time. It can be a one time lump sum payment to your creditors. Or it can be a combination of the two. The lump sum can be from the sale of an asset or other. You will discuss this with the trustee when you meet with them.
When I meet with people in our Mississauga or Brampton offices to discuss options they want to do a proposal for various reasons. For some people making a proposal is a moral issue. They just cannot accept going bankrupt. For others is it to protect an asset, such as equity in a house from being seized. For others it is because of the job they have and they cannot go bankrupt as they will not be able to keep the job, or be bonded.
The basic criteria for a proposal is, as follows:
- Your debts must be less then $75,000 excluding a house mortgage. If your debts are more than $75,000 there is a different type of proposal available to you;
- The maximum time allowed in a proposal is 5 years or 60 months; and
- You must have an ability or budget that will allow for you to make the proposal payments.
- You can do a joint proposal with another person who has a financial relationship with respect to shared debts.
This proposal or contract that you offer to your creditors is voted on by them. Thus your creditors decide if they want to accept your offer by voting every dollar of debt. In order for the proposal to pass, there must be 50% plus $1.00 of claims filed and voting infavour of the proposal. Your creditors have 45 days from the day you sign the proposal papers to decide if they are willing to accept the offer.
How do creditors decide how to vote? Many have their own internal criteria but for most the proposal must offer something better then what a bankruptcy will give your creditors. Therefore, the information provided to your creditors is a snap shot of your assets, the things you own and your debts at the time you file, along with a monthly budget.
If the vote is “yes” then your proposal passes. There is a court approval process. After about 60 days if all is in order the proposal is in place. You will then just need to fulfill the terms or payment schedule as per the proposal contract.
Generally, if creditors vote “no”, they will counter offer. Thus, give alternative payment terms. It will be up to you to decide if you want to accept the new terms and amend your proposal or counter offer. With your counter offer, you will need to decide if you can afford the additional amount and/or additional time.
If there is a “no” vote and there are no terms that either you or your creditors can agree upon, then the proposal is annulled by the Court. This means that there is no proposal or contract and thus no stay of proceedings in place, such that your creditors can now pursue you for the debts. You are not automatically bankrupt but many will make an assignment in order to prevent their creditors from pursuing them.
Other ways to have your proposal annulled by the Court is if you fall behind 3 of the payments as set out in the proposal. Therefore, you can miss one or two payments but not 3. Some people think this is easy to accomplish but a proposal is not easy. It is a contract and in most cases over a period of time. It is a long diet or commitment. And it does affect your credit rating for approximately 7 years. But you have a better rating then a bankruptcy.
There are also two counseling sessions you are required to attend. Each is about an hour long and the first one deals with budgeting and the second deals with the causes of your financial difficulties. Most people find them very useful to get a fresh start. We offer these sessions in our Mississauga office.
Many people ask me how I get paid and what it will cost them. Our fees are set by the government that monitors us. Generally, our fees are paid out of the proposal payments so that there is no extra invoice or account issued.
Once you have completed your proposal, you will be issued a certificate of completion and your credit report will be updated to reflect that you have completed same.
There are some very good reasons to do a proposal. If you are dealing with debt and want to know if this is an option for you then please contact our office at 310-PLAN. We will be happy to assist you in the process.