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The Consumer Proposal Process
A consumer proposal is a legal process. With a consumer proposal, you agree to pay back a portion of the debt that you owe to your unsecured creditors over a specified period of time. Once the payments have been made and you have fulfilled your duties, the remaining outstanding debt is forgiven.
Debts that can be Included in a Consumer Proposal
A consumer proposal can include unsecured debts such as:
- Credit card debt
- Unsecured lines of credit
- Overdrafts on chequing accounts
- Personal loans
- Department store card debt
- And other unsecured debts
Secured debts such as mortgages, vehicle loans and other such debts cannot be included in a proposal. If you are having difficulty paying these debts, you will need to speak with these creditors individually.
Comparing Consumer Proposal to Bankruptcy
While both are legal processes, there are differences between a consumer proposal and a bankruptcy. The chart below outlines many of the differences and similarities that exist between these two debt relief options.
|A consumer proposal can only be filed if your unsecured debts are less than $250,000. (This excludes the mortgage on your personal residence.)||There is no limit on the size of debt load.|
|Available only to individuals.||Available to both individuals and companies.|
|Once electronically filed with the Federal Government, legal protection is in place immediately. Your unsecured creditors will be notified within 5 business days.||Once electronically filed with the Federal Government, legal protection is in place immediately. Your unsecured creditors will be notified within 5 business days.|
|Unsecured creditors have 45 days to vote on whether to accept the proposal or to put forward a counter-offer. If your consumer proposal is approved by the majority of your creditors, it receives court approval 15 days later.||Creditors cannot stop the bankruptcy process once it has been filed. There is no voting by creditors required at this early stage.. Under certain circumstances, a creditor can request an examination of the Bankrupt.|
|If the creditors who are owed 25% or more of your debt request one, a Meeting of Creditors can be called. The meeting will be held within 21 days of being called.|
Meetings of Creditors are very rare and will likely only be called in extraneous circumstances.
|The amount that you pay each month is calculated at the time that the proposal is filed. This amount does not change over the life of the proposal.|
Your income is tracked throughout the bankruptcy process. If your income changes then the amount of your monthly payments you may have been making will change as well. The amount may increase or decrease.
|You must attend two mandatory financial counseling sessions. The first must happen within 60 days and the second within 210 days.|
You must attend two mandatory financial counseling sessions. The first must happen within 60 days and the second within 210 days.
|You do not need to submit monthly income statements to your trustee.||You are required to submit monthly income statements to your trustee.|
|Tax refunds go to the debtor.||Tax refunds for calendar year turned over to creditors.|
|You do not lose your GST refunds.||GST refunds will be turned over to creditors.|
|The length of a consumer proposal can between one and five years. You are able to pay your proposal more quickly if you choose to.||For first time bankrupts, the bankruptcy process typically takes about nine months with no surplus income or twenty one months if there is surplus income. For second-time bankrupts the process can last from twenty four to thirty six months bankruptcy period of up to twenty one months.|
|If you miss three consumer proposal payments, the proposal can be annulled. This means that the legal protection immediately stops and creditors have the legal right to pursue debt collection.||You are required to complete bankruptcy payments in full before a bankruptcy discharge is issued by the Trustee.|
|There are no penalties for paying down a proposal early. The fact that you filed a consumer proposal will be deleted from your credit bureau record after three years from your discharge.||Bankruptcy payments can be paid down earlier but early discharge does not usually occur. The fact that you filed a bankruptcy will be deleted from your credit bureau record six years after your discharge. You may begin to rebuild your credit at any time but reaching an R1 will depend on numerous factors.|
This chart only highlights some of the similarities and differences between bankruptcy and consumer proposal. Meeting with a licensed Vancouver bankruptcy trustee can help you determine which option is the right one for your particular situation.
We Can Help
If you’re having financial difficulties and are unable to pay your debts as they become due, you may feel as though your situation is hopeless. However, that isn’t the case. There are options available that can help you reduce or eliminate your debt, such as a consumer proposal. Vancouver residents who are struggling with debt can speak with one of our trustees in order to better understand the debt relief options that are available to them.
For a free consultation with a trustee in bankruptcy, please contact our Vancouver office today.