What is a Consumer Proposal?

What is a
Consumer Proposal?
BankruptcyCanada.com

Table of Contents
• Page 3: What is a Consumer Proposal? – Learn More
• Page 4: What is a Consumer Proposal?
• Page 5: When Should I File a Consumer Proposal To My Creditors?
• Page 7: What Are My Responsibilities in a Consumer Proposal?
• Page 8: How Does a Consumer Proposal Work?
• Page 9: Example of a Creditors Vote on The Proposal
• Page 13: What Happens When My Consumer Proposal is Accepted?
• Page 15: What Happens if My Proposal is Rejected?
• Page 17: Impact of a Consumer Proposal on Credit Rating
• Page 19: What Happens to My Secured Debts in a Consumer Proposal?

What is a Consumer Proposal? – Learn More
From a Government Licensed Insolvency Trustee
• Any individual in Canada who has debts that do not exceed
$250,000 (not including mortgage debt on your principal
residence) may consider filing a consumer proposal as a way of
dealing with their debts and making a settlement with their
creditors.
• As a bankruptcy alternative, a consumer proposal can be very
effective because there are many benefits over filing for
bankruptcy.
• One of the main benefits of a consumer proposal vs. bankruptcy is
that you get to retain all of your assets that you own; if you have
significant assets you would lose in bankruptcy, a consumer
proposal can allow you to keep everything you own and find a
solution to your credit problems.

What is a Consumer Proposal?
• A consumer proposal is a legally binding process administered in a
formal manner by a Licensed Insolvency Trustee (LIT).
• When a LIT administers a consumer proposal they are known as a
consumer proposal administrator.
• In this legal process under the Bankruptcy and Insolvency Act your
LIT will help you develop a proposal to offer your creditors to pay a
percentage of the debt you owe to them over a period of time
lasting for not more than 5 years.
• When you enter into a consumer proposal with your creditors you
will make payments to your consumer proposal administrator, and
in turn, your administrator will make payments to all of your
unsecured creditors.

When Should I File a
Consumer Proposal to My Creditors?
• Our Government Licensed Insolvency Trustees offer you an
initial consultation meeting to help you discover if a
consumer proposal, or another option, is the best choice for
getting out of your money problems.
• Our LIT will analyze your money problems and the causes to
your problems and explain the pros and cons of each of the
solutions that could help with your money problems.
• The proposal administrator will help you develop a consumer
proposal plan that will be accepted by your creditors and
affordable for you to follow; a consumer proposal will be fair
for all parties involved.

What are my Responsibilities
in a Consumer Proposal?
• When you submit a consumer proposal to your creditors you
will have certain responsibilities you must:
• * Make all the required payments as listed in the terms of
your consumer proposal. If you miss three payments as
required your consumer proposal will be cancelled and your
creditors will be able to come after you and attempt to
collect on your debts. If your consumer proposal is cancelled
you won’t be able to file another proposal;
* Submit a list of your assets and liabilities (debts) that you
have;
* Attend two counselling sessions at the LIT’s office;

What are my Responsibilities
• * Advise your Licensed Insolvency Trustee of any
address change;
* Provide the trustee with any information she or he
asks for and assist in any way requested to
administer the proposal.
* You might be required to attend a meeting of
creditors if your creditors request such a meeting.

How Does a Consumer Proposal Work?
• Your consumer proposal administrator will submit the proposal plan to all of
your creditors and once the proposal is submitted your creditors will have 45
days to vote to either accept or not accept the proposal plan.
• They can also vote to accept the proposal if you accept certain conditions
they request, such as additional payments each month or payments for a
longer term.
• If the creditors request, a meeting of creditors will be held, although they can
also mail their vote to your trustee / proposal administrator.
• The creditors meeting will be held if one or more of your creditors holding at
least 25% of the total proven claims of debt against you request a meeting of
creditors to be held within 45 days of the proposal being submitted.
• Your LIT will also call a meeting of creditors within the 45 day period if so
directed by the Office of the Superintendent of Bankruptcy.

How Does a Consumer Proposal Work?
• During this meeting, which will be held within 21 days of being
requested, your creditors will vote to accept or reject the proposal.
• If no meeting of creditors is requested, or your creditors do not supply
a vote within the same 45 day time frame then the proposal be
automatically be deemed accepted by the creditors.
• Even if certain creditors object or vote to reject the proposal if more
than 50% (a simple majority of the dollars votes, ie 50% +1) of the
creditors vote to accept the consumer proposal it will be deemed
accepted and any creditor who objects to the proposal will be bound
to the terms of the proposal. Each dollar you owe will count as a vote.

Example of a Creditors Vote on the Proposal
• For example, if you owe $20,000 to credit card 1 at creditor #1,
$30,000 to credit card 2 at creditor #2, and $80,000 on a personal loan
to creditor 3 and creditors 1 and 2 vote to reject the proposal but
creditor 3 votes to accept the proposal, the proposal will be deemed
accepted even though there were 2 creditors voting against accepting
the consumer proposal plan and only one creditor voting to accept it
because the one creditor voting to accept the proposal had more
votes because they had more debt owed to them than creditor 1 and 2
combined.
• When your proposal is voted to be accepted your creditors or the OSB
will have 15 days in which they can request that your LIT has the
proposal reviewed by applying to the court.

• The consumer proposal will be accepted by the court if no such
request is made within the required time frame.
• A consumer proposal plan can last for up to 60 months.
• The reason the length of a consumer proposal is limited to 5
years is to give people hope they will eventually be debt free.
• Any longer than 5 years and people can get discouraged and lose
faith in their proposal plan.
• When you submit a consumer proposal your LIT will file the
proposal with the OSB (Office of the Superintendent of
Bankruptcy).

• As soon as your proposal is filed you will make payments to
your LIT (Licensed Insolvency Trustee) instead of your
creditors.
• Actions such as wage garnishments (a collection of part of
your salary by your creditors) or lawsuits against you for
debt collection will be immediately stopped through a
process known as the “stay of proceedings.”
• In addition, if your creditors are collecting your
salary (garnishing your wages) or have filed lawsuits against
you, these actions are stopped.

What Happens When My
Consumer Proposal is Accepted?
• Once your consumer proposal has been accepted you will start
following the terms of the proposal:
• * You will make the payments as required under the terms of the
proposal.
• These payments can be a lump-sum payment made up front to end
the consumer proposal as soon as possible, or monthly payments for a
certain period of time lasting no longer than 60 months. Most
consumer proposal payment plans last approximately 3 years;
• * You will also be responsible for any other conditions that are
required in your proposal plan; and
• * You will be required to attend the required two counselling sessions.

What Happens When My
Consumer Proposal is Accepted?
• The point of these meetings is to help you understand the
cause of your financial problems that led to you filing a
consumer proposal and help you learn how to manage your
finances properly in the future so you can avoid money
problems in the future.
• Your monthly payment will be the only payment you make;
all fees for the trustees’ time and other fees are included in
this payment (the trustee will take approximately 20% of
your proposal payments to cover their administration fees).

What Happens if my Proposal is Rejected?
• Almost 100% of proposal plans are accepted because the
main condition of a consumer proposal is your creditors
must be better off than if you file bankruptcy.
• When structuring your proposal, your LIT will help make
sure the proposal plan fits this requirement and that the
plan you submit to your creditors has the greatest chance
of being accepted.
• However, in rare cases, it is possible for a proposal to not be
accepted.

What Happens if my Proposal is Rejected?
• If your proposal is rejected you can:
• * Make changes to the proposal, such as increasing the
monthly payment, the size of the lump sum payment, or
increasing the number of months to make payments;
* Consider seeking other options for getting out of debt; or
* You can claim bankruptcy. If your consumer proposal is
rejected you are not automatically forced into bankruptcy.

Impact of a Consumer Proposal on Credit Rating
• When you file a consumer proposal your credit rating will
automatically be set to an R7 rating, while if you file bankruptcy
you will receive an R9 rating which is the worst possible credit so
a consumer proposal does not have as dramatic an effect on
your credit rating as a bankruptcy.
• The record of your consumer proposal will remain on your credit
report for 3 years after you receive your “certificate of
completion” after making your final payment as required in your
proposal.
• As a consumer proposal can last for up to 5 years, the record of
your proposal can remain on your credit report for up to 8 years.

Impact of a Consumer Proposal on Credit Rating
• You can also complete a consumer proposal in only a
few months by offering a lump sum payment which in
turn means the record of your consumer proposal will
only remain on your credit report for slightly more than
3 years.
• When you receive your certificate of performance you
can send a copy of this document to your creditors
which will allow your credit report to be updated as
soon as possible.

What Happens to my Secured Debts
• You won’t be able to include your secured loan debts in
a consumer proposal.
• Secured debts include car loans and mortgages.
• You will be required to keep making the required
payments on your mortgage and car loan.
• If you cannot afford to make these payments, along
with your consumer proposal payments, you might
have to sell the asset.

What Happens to my Secured Debts
• Additionally, if you have assets that you can sell and
repay what you owe your creditors may reject your
proposal.
• If you would like to know more about what a consumer
proposal is you can contact one of our Licensed
Insolvency Trustees, who are also the only experts that
can help you file a consumer proposal.

What is a Consumer Proposal?

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