I think that we are at a point where most consumers are aware of consumer proposals and what they try to achieve. A consumer proposal is one of the options that might be available to someone who is insolvent and unable to keep up with their required payments. Here we will talk about things to know about your role in the process, a few of the things to know about the Licensed Insolvency Trustee’s role and things to know about how the creditors might respond in your consumer proposal. Well let’s get started!
Consumer Proposals and Where to Start
Always, always start with contacting a Licensed Insolvency Trustee (LIT). Most, if not all LITs provide free consultations and provide the whole list of options that can help with your debt situation. LITs get their authority from the Bankruptcy and Insolvency Act, which is important when dealing with creditors that are looking to exercise their rights; and are governed by the Office of the Superintendent of Bankruptcy. The fees that a LIT can charge under a consumer proposal are also regulated by the Bankruptcy and Insolvency Act.
What does all that mean?
You will save money when you start with a LIT and you can have confidence in the process, given its regulated nature.
Doing Your Part
It is important to know that since this is your consumer proposal, you have to be an active participant in the process. This is more than just making the lowest possible payment to your creditors.
When you meet with your LIT, it is important to be transparent and honest. The LIT is an officer of the court and has to balance your rights with the rights of all other stakeholders. You will be required to disclose ALL assets, ALL creditors and ALL sources of income and any other relevant information – got it?
In some cases, people will hide material information. This creates issues when this information surfaces. The creditors and the LIT will also lose confidence in your intentions. One of the goals of the Bankruptcy and Insolvency Act is to provide an honest but overburdened debtor a fresh start. So be honest!
The LIT will generally provide a recommended payment that you should offer under your consumer proposal. This is generally a fixed monthly payment for 60 months. This is only a recommendation and creditors do have rights – I know, hard to believe!
Some creditors don’t invest too much in the way of resources in this process and will accept a consumer proposal that an Administrator (appointed title for a Trustee under a consumer proposal) recommends.
Other creditors will endeavour to maximize their recovery. These creditors will either look for a certain return on the dollar or will pick apart your estimated household expenses (i.e. if you’re spending a few hundred dollars a month on entertainment, they may expect you to cut that back and pay a portion of that into the proposal).
So, don’t be surprised if your LIT tells you that the creditors will only accept a proposal if the payment is increased to a certain number.
At this point in time, you’re down to a few options. If the creditor ask isn’t too much more than what you have offered, you may agree to their terms and amend your proposal. It the creditors’ ask is quite a bit higher than what you have offered and making the payment that they are looking for creates financial hardship, you can offer a counter offer of something in between what you offered and what they have asked for. Your LIT will handle the negotiation – you won’t be asked to speak with your creditors. If you and your creditors can’t reach a deal that is one you can afford and one that they are willing to accept, you can always make an assignment in bankruptcy or return to dealing with your creditors on your own.
I’m often asked “do you think that the creditors will accept my proposal?” It is always case by case and in most cases, creditors would prefer a consumer proposal as they know that the alternative is bankruptcy. But there are circumstances where the creditor may be willing to cut their loses if they feel that your consumer proposal isn’t fair to them.
You Got Your Deal in Place. Now What?
Once you get through the negotiation stage, it is time to carry out the terms of your consumer proposal. In all cases this will include making payments as outlined in the consumer proposal and attending two credit counselling sessions. Sometimes there will be other non-economic clauses like filing tax returns on time or carrying out some other task.
Of note, under the Bankruptcy and Insolvency Act, you are only allowed to be in payment arrears to the extent of 2 payments. If you fall three full payments behind on your consumer proposal, your consumer proposal becomes deemed annulled. Simply put, your consumer proposal is void and your creditors may resume collection activity against you.
Once you have performed all the terms of your consumer proposal, you will receive a Certificate of Full Performance. This operates the same way as a discharge from bankruptcy. A couple of things to know is that not all debt can be discharged by a consumer proposal and your credit report will show that you filed a consumer proposal for the next three years.
For a list of debts that are not discharge, see section 178 of the BIA.
Talk to an Expert
If you’re looking for more information or would like to book an appointment with our office, you can call us at 519-601-9795 or email us at email@example.com.