A Consumer Proposal is an agreement between you and your creditors. It allows you to settle your unsecured debt on different terms then were originally intended, and for an amount usually less than the total amount you owe.
When you file a proposal, it stops your unsecured creditors from continuing collection actions. If the proposal is accepted and you successfully complete the terms, you are relieved of your unsecured debts, with some exceptions (see What debts are not settled with a Consumer Proposal?). If the proposal is rejected or you default on the proposal terms, your creditors can restart collection actions.
To help you determine if a proposal is appropriate, the licensed insolvency trustee at R. West & Associates Inc. will consider your assets, liabilities, income, and other pertinent information. A proposal can be flexible, with monthly payments based on your particular circumstances. It can include a partial liquidation of your assets, but in most cases it’s based on your ability to pay.
Advantages of a proposal
- For a proposal to be accepted, you only need the accepting creditors to represent the majority (greater than 50%) of the value of the total proven debt. Once the proposal is accepted and approved by the court (or deemed approved), it is binding on all your unsecured creditors.
- You’ll know both the total amount of the Consumer Proposal obligation (no interest and no hidden fees) and the repayment terms.
- The trustee’s fees and disbursements are paid out of the total proposal obligation; they are not added to the obligation.
- If your income rises, you won’t be required to pay more.
- Your creditors cannot start or continue collection actions throughout any accepted and successfully completed proposal (or for at least 65 days from filing the proposal if the proposal is rejected).
- You may keep a credit card if no money is owed to that creditor at the time of filing the proposal.
- You won’t go bankrupt, and your credit rating will indicate a “settlement of debt.”
- You’ll learn how to budget and better manage your finances.
What makes a successful proposal?
The more information we have about your ongoing financial obligations (secured debt, child support, vehicle loan, daycare), the non-exempt assets you wish to keep, and your income and expected cash flow, the better we can draft terms that will be acceptable to both you and your creditors.
Most proposals are based on monthly payments over a specific period. The length of time depends on the amount of the payment and the value of any non-exempt assets (such as an RESP) that you wish to keep. To be acceptable to creditors, a proposal usually should have 40 to 50 monthly payments. The maximum duration is 60 months. We will guide you on this issue based on your specific finances and our experience.
Advantage to creditors
The payout to your creditors must be greater than what the creditors would expect if you went bankrupt. Creditors will consider your specific circumstances and the reason for your debt problems. Typically, a proposal must distribute at least 25 cents on the dollar in order for it to be accepted. Each proposal is judged on its own merits.
Likelihood of completion
Although a proposal can be flexible in terms of your payments, it is important to draft payment and default terms that increase the likelihood of you completing the proposal.
See our Consumer Proposal FAQs.