- Am I eligible to file a Consumer Proposal?
- What should I offer to make an acceptable Consumer Proposal?
- Are all of my creditors affected by my Consumer Proposal?
- Can I get out of my car loan or mortgage?
- Who do I pay?
- What happens after I file a Consumer Proposal?
- What happens if I can’t meet the terms of my Consumer Proposal?
- How long will my Consumer Proposal last?
- How does a Consumer Proposal affect guarantors and co-signers?
- Can I keep my credit cards?
- What debts are not settled with a Consumer Proposal?
- How will my credit rating be affected?
- What happens if I owe more than $250,000?
To qualify for a consumer proposal, you must meet these requirements:
- Your debt cannot exceed $250,000, excluding the secured portion of your home mortgage. (If your debts are more than $250,000, you may consider filing a Division I Proposal. See What happens if I owe more than $250,000?)
- You cannot have already filed a Notice of Intention to File a Proposal or a Division I Proposal.
During your free initial consultation, we will review your income, cash flow, assets, creditors, total debt, reason for your insolvency, and risk of default. Based on this information, we’ll determine if a proposal is possible. If it is, we’ll help you determine the appropriate amount to offer and explain how that amount was calculated.
Your secured creditors (home mortgage, car loan) are usually not affected by your proposal. Your proposal usually only settles the debts owed to your unsecured creditors (creditors with no security used as collateral). Unsecured creditors include credit card debt, lines of credit, account overdrafts, income tax or GST/HST arrears, and so on.
Usually, secured creditors are not affected by a proposal. However, you can elect to surrender secured assets and stop making payments to secured creditors as part of your proposal. These creditors will likely enforce their security and seize the assets pledged to them as security. Any shortfall that may exist from the sale of the asset compared to the amount owed to the creditor may be included as unsecured debt in your proposal. Proposals that deal with secured creditors are more complicated. Often, the terms need to be adjusted for such proposals to be acceptable.
When you file a proposal, you stop paying your unsecured creditors directly. Once your proposal is accepted, all payments described in the terms of the proposal are made to R. West & Associates Inc. We periodically distribute funds to your creditors.
When you file a proposal, we inform your creditors of the Stay of Proceedings. Your unsecured creditors are required to deal directly with us as your trustee and must stop contacting you directly. If a creditor continues contacting you, you should notify us immediately.
As part of our duties as trustee, we prepare a report to the creditors explaining the results of our investigation, compare the estimated realization of a bankruptcy compared to a proposal, and state our opinion on the acceptability of the proposal. We monitor the votes and answer any questions during the 45-day voting period. Acceptance is based on these criteria:
- If the creditors who vote to accept the proposal represent greater than 50% of the value of the total proven debt and those who vote against represent lessthan 25%, the proposal is deemed to have been accepted (subject to the court’s approval if applicable).
- If the creditors who vote to accept the proposal represent greater than 50%of the value of the total proven debt and those who vote against represent greater than 25%, a meeting of creditors is required, but usually the proposal is still accepted and no amendment is required (subject to the court’s approval if applicable).
- If the creditors who vote to accept the proposal represent less than 50% of the value of the total proven debt, a meeting of creditors is required and an amended proposal may be negotiated. In most cases, an acceptable amended proposal can be negotiated. If an acceptable amended proposal is not negotiated, the proposal is considered to be rejected and the Stay of Proceedings is lifted.
- A creditor who does not vote is not considered when determining whether a proposal is accepted.
- If the proposal is accepted, it binds all the creditors, including those who voted against acceptance (“majority rules”). For a summary of the process, see Consumer Proposal Flowchart.
Prior to drafting the terms of your proposal, we’ll review your budget, ability to pay, and risk of default. When we draft the terms of the proposal, we’ll allow you some flexibility to miss payments and not default on your proposal. We’ll explain these terms with you prior to filing your proposal.
After your proposal is accepted, if you can’t make a payment, we ask that you immediately contact us so we may review the situation and discuss how to avoid a default. If you default on your proposal obligations, the proposal is automatically annulled. However, depending on your circumstances, you may be able to revive the proposal. If you’re not able to revive the proposal, the Stay of Proceedings is lifted and your creditors have the right to restart collection actions.
The maximum length of a proposal is 60 months. The acceptable length depends on your particular circumstances (prior insolvencies, cause, assets, and ability to pay). Most acceptable proposals are between 40 and 50 months. We will help you determine the appropriate total amount to offer and how that amount is to be paid.
A guarantor or co-signer of debt is not protected by a proposal. Such parties should contact the creditors directly to avoid collection actions.
Credit cards relating to debts settled by a proposal must be given to the trustee; we ensure they are destroyed. You may be able to keep a credit card if no monies are owed to that creditor at the time of filing the proposal.
As in a bankruptcy, the following debts are not settled unless the proposal specifically states that the debt will be released and the creditor who is owed these funds accepts the proposal:
- court fines, penalties, and restitution orders
- alimony, child support, and maintenance (Ongoing obligations for child support or alimony are not stayed by a proposal; you are required to continue to make these payments.)
- any debt or liability arising out of fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity
- debts not disclosed to the trustee (Creditors are entitled to the dividend that would have been paid if a claim had been submitted in the proposal.)
- any award by the court for bodily harm inflicted intentionally, sexual assault, or wrongful death student loans, if you ceased to be a student (ended your studies) less than 7 years before filing your proposal debt for interest on debts that survive a bankruptcy
A Consumer Proposal gives you a credit rating of R7 (debt settlement). This rating is not as low as a bankruptcy (R9) rating. To encourage proposals, the R7 rating is removed from your credit history three years after you complete the terms of the proposal.
You may consider filing a Division I Proposal instead of a Consumer Proposal. Here are the main differences between these two types of proposals:
- If the proposal is rejected, there is no automatic bankruptcy.
- Debts must be less than $250,000 (excluding home mortgage).
- The maximum duration of the proposal is 60 months.
- For the proposal to be accepted, the creditors who vote to accept must represent greater than 50% of the total proven debt; if accepted, the proposal binds all unsecured creditors (including the dissenters).
- Fees are paid out of funds realized for creditors and are set by the government (tariff).
- If you default on the proposal payments, the Stay of Proceedings is lifted but you are not automatically bankrupt.
Division I Proposal
- If the proposal is rejected you are deemed to have assigned into bankruptcy.
- Debts are usually greater than $250,000.
- There is no maximum duration.
- For the proposal to be accepted, the creditors who vote to accept must represent greater than 66.66% of the value of the total proven debt and represent greater than 50% in number, and the court is required to ratify the acceptance of the proposal.
- Fees are paid out of funds realized for the creditors, based on the proposal terms.
- If you default on the proposal terms, you could be forced into bankruptcy.