Bankruptcy Alternative #1: Consumer Proposal

What is a consumer proposal?
Consumer proposal, the bankruptcy alternative #1 in British Columbia and Canada in general, is a debt management solution similar to debt management plans. Consumer proposal to creditors is designed for people who have a stable income, and can pay their debts, but need a certain length of time to do so. They are best suited for people with debts in excess of $5,000 dollars, to a maximum of $75,000 dollars.

What is the difference between a consumer proposal and a debt management plan?
Unlike a debt management plan, a consumer proposal is legally binding and administered by the courts and a licensed bankruptcy trustee.

What are the advantages of consumer proposals and are they a good bankruptcy alternative?
Advantages include:

• A maximum period of five years
• Usually accepted by your creditors
• Interest is frozen from the date that you file the proposal
• You can negotiate to repay only a portion of the debt
• Wage garnishments are stopped immediately
• Your creditors are “stayed” and cannot take legal action against you

What happens in a consumer proposal to creditors?
At the beginning of the process, your bankruptcy trustee will assess your financial situation and figure out what kind of monthly payment you can afford to make. They will then compare that amount to your total debt, and determine how many months you will need to pay. If the numbers seem reasonable to both you and your creditors, the trustee will prepare the necessary documents to file a consumer proposal. It is essential that you include all of your unsecured creditors.

What happens if some of my creditors don’t like my proposal?
Under the Bankruptcy and Insolvency Act, your creditors have 45 days to vote for or against your proposal. All you need is for the majority (50% +1) to vote in favour of your proposal. If they do, then it is considered acceptable for all of your creditors. Usually creditors will realize they’d get even less if you filed for personal bankruptcy, and will accept your proposal.

What if a majority does not vote in favour of my proposal?
If 25% or more of your creditors do not vote in favour of your consumer proposal, your trustee will call a meeting of creditors. You must attend this meeting. The trustee will help you and your creditors reach an agreement that will be acceptable for everyone.

What happens after my proposal is approved?
Fifteen days later, if there are no objections; your proposal will be approved by the court. From then on, you and your creditors are locked into the terms of the proposal.

What happens if I miss a payment?
You may miss up to two payments throughout the duration of your consumer proposal to creditors, and the trustee will simply add those two payments onto the end. However, if you miss anymore than two, the consumer proposal collapses and is annulled by the court. Your creditors can then immediately apply to the court to have your wages garnished, and interest charges are applied to your debts all the way back from the day you filed.

What happens to my credit rating in a consumer proposal?
Your credit rating will be revised to reflect your current situation, and it will likely remain that way until the end of the proposal period. A note indicating you filed a proposal will also remain on your credit report for seven years beginning from the date you filed.

How much does a trustee charge?
Trustee fees are set by the Superintendent of Bankruptcy. Generally, your trustee will be paid out of the proceeds of your consumer proposal.

Finally, if you are currently having financial troubles and are looking for a bankruptcy alternative that can work for you, consider filing a consumer proposal to your creditors. You can contact our bankruptcy trustee in British Columbia today and arrange for a a free initial consultation. We will assess your situation, and help you make the right decision.