Bankruptcy Alternatives: Consumer Proposals

Consumer proposal, one of the most popular bankruptcy alternatives, is the ideal choice for those who can afford to pay back their debts, but need an extended amount of time to do so. People considering a consumer proposal should have a stable job and income.

Consumer proposal is often compared to a debt management plan, yet another bankruptcy alternative available. The difference is that a consumer proposal is legally binding, and is administered by the courts by a licensed bankruptcy trustee.

Though consumer proposals are available to almost anyone, the best candidates are those with debts in excess of $5,000 to a maximum of $75,000.

Advantages of filing a consumer proposal are:

- A maximum period of five years.
- They are generally accepted by creditors.
- Interest is frozen at the date of filing.
- Negotiations can be made to pay back only a portion of the debt.
- Wage garnishments end immediately.
- Your creditors are “stayed”, which means they cannot take any legal action against you.

When the process begins, the personal bankruptcy trustee will review the debtor’s financial situation, and determine how much the debtor can afford to pay each month. If both the creditors and the debtor agree with the numbers, the trustee will put together the necessary paperwork to file a proposal. It is essential that all unsecured creditors be included in the proposal.

Once the consumer proposal is filed, creditors then have 45 days, under the Bankruptcy Insolvency Act, to vote for or against the debtor’s proposal. If a majority vote in favour of the proposal, it is considered acceptable by all creditors. Typically creditors will vote in favour of the proposal, as they would receive even less money if the debtor were to file for personal bankruptcy.

15 days later, if none of the creditors have any objections, the proposal will be approved by the court. As of that date, both creditors and debtor are locked into the terms of the proposal.

The bankruptcy trustee may call a meeting of creditors if 25% or more do not vote in favour of the proposal. It is mandatory that debtor attend this meeting. The trustee will help debtors and creditors come to an agreement that is suitable for all parties.

Debtor can miss up to two payments throughout the duration of the consumer proposal, and the trustee will just add them on at the end; however, if a debtor misses more than two payments, the consumer proposal falls apart, and is annulled by the court. Creditors can then immediately apply to the court for wage garnishment. Interest charges are also added to all debts dating back from the day the debtor filed.

Immediately following the proposal filing, the debtor’s credit rating will be adjusted to reflect their current situation, and will probably stay that way until the proposal completion. A note will also remain on his/her credit report for up to seven years beginning from the proposal filing date.

Trustee fees are determined by the Superintendent of Bankruptcy, but generally the trustee will be paid from the proceeds of the consumer proposal.

For more information on bankruptcy and consumer proposal, and on other bankruptcy alternatives available to you, please contact our bankruptcy trustees and arrange for a free consultation - they will examine your personal situation and help you determine the best option for you.