In Ontario, Canada, a consumer proposal is a legal process designed as an alternative to bankruptcy for individuals unable to pay their debts. It allows debtors to make an arrangement with their creditors to pay back a portion of their debts over a period of time, up to a maximum of five years. The process is governed by the Bankruptcy and Insolvency Act (BIA) and must be administered by a Licensed Insolvency Trustee (LIT).
Key Features of a Consumer Proposal in Ontario
Debt Limit
To be eligible for a consumer proposal, your total debts (excluding the mortgage on your principal residence) must not exceed a certain limit set by the BIA, which is currently $250,000.
Proposal to Creditors
The consumer proposal is essentially an offer to your creditors to pay back a percentage of what you owe them over a specified period, with payments made to the LIT, who then distributes these funds to your creditors. The terms are flexible and can be tailored to your financial situation.
Stay of Proceedings
Filing a consumer proposal provides an immediate stay of proceedings, meaning that creditors cannot take legal action against you, garnish your wages, or contact you for payment. This provides relief and allows you to focus on fulfilling the terms of the proposal.
Interest Freeze
From the date the proposal is filed, interest stops accumulating on your debts, which can significantly reduce the total amount you owe over time.
Creditor Approval
For a consumer proposal to proceed, creditors representing at least 50% of your total debt must vote in favour of your proposal. If approved, all unsecured creditors are bound by the terms of the proposal, even those who voted against it.
Impact on Credit Rating
A consumer proposal affects your credit rating less severely than bankruptcy. It is noted on your credit report for three years after you complete all payments under the proposal, compared to at least six years for a first-time bankruptcy.
Asset Retention
Unlike bankruptcy, where you may have to surrender certain assets, you can keep all your assets in a consumer proposal, provided you continue to make any payments required to secured creditors (e.g., car loan, mortgage).
Financial Counselling
Completing two financial counseling sessions is a requirement of the consumer proposal process. These sessions aim to help you manage your finances better in the future.
Advantages Over Bankruptcy
Less Severe Impact on Credit
As mentioned, the consumer proposal stays on your credit report for a shorter period compared to bankruptcy.
Asset Retention
You are more likely to keep all your assets in a consumer proposal.
Flexibility
The terms can be tailored to your financial situation, potentially making it easier to manage your finances and avoid future financial distress.
A consumer proposal can be a viable option for individuals facing financial difficulties, offering a way to deal with debt without resorting to bankruptcy. Contact Allen Ehlert who can refer you to a Licensed Insolvency Trustee who will explore all available debt relief options for your situation and administer a consumer proposal as described in the Bankruptcy and Insolvency Act.
