Consumer Proposal

A proposal is an agreement to pay back your creditors when you find that you are unable to pay your debts in the normal course. The payment schedule, which is created in consultation with a Trustee, is based on your income, living expenses and family responsibilities.

If you are unable to meet your payment obligations and your debts are less than $250,000, you may file a consumer proposal. The mortgage on your principal residence is not included in the total amount of your debt for purposes of determining the $250,000. If you have joint debt with your spouse or another individual, you may be permitted to file a joint consumer proposal, meaning you both make one payment to compromise the total debt between you. The threshold for a joint consumer proposal is $500,000.

If you are unable to meet your payment obligations and your debts exceed $250,000, not including your mortgage, you must file a Division I proposal.

If you are experiencing debt stress, and are considering filing a proposal, you generally don’t need a lawyer.

Only a Trustee can legally initiate and process proposal proceedings. However, a Trustee will work with counsel of your chosing on more complex personal restructurings.

Working directly with a Trustee in Bankruptcy will save you money by providing a free consultation to determine if, when, and how you should proceed. As well, you receive proper, concentrated attention throughout your entire proceedings. A Trustee will deal with your creditors on your behalf. You could end up paying only a portion of the money you owe, with one low affordable monthly payment, and no interest. A Trustee will explain your options other than bankruptcy, such as consolidation loans, re-mortgaging your house, loans from family or friends, budgeting, proposals, sale of your vehicle, or liquidation of existing assets.

A proposal can:

• relieve the stress of creditors calling and demanding payment;
• deal with all creditors at the same time to reach an agreement once and for all;
• reduce the total amount owing so you can afford to pay your creditors;
• begin repairing your damaged credit rating; and
• halt further interest from accruing on your existing debt.

A meeting of creditors is required for a consumer proposal only if 25% of the creditors request it. A meeting of creditors is required for a Division I proposal within 21 days after filing.

For consumer proposals, all creditors must file a proof of claim with the Trustee which is then validated and accepted by the Trustee. Each dollar of debt represents one vote. Acceptance by a simple majority of the dollar value of the claims filed will approve the consumer proposal.For Division I proposals, all creditors must file a proof of claim with the Trustee which is then validated and accepted by the Trustee. Of the claims filed, acceptance by a majority in number, that represents 66 2/3% or more of total debt, is required to approve the Division I proposal.

For consumer proposals, if one of your creditors votes against accepting your consumer proposal, and requests a meeting of creditors, the Proposal Trustee must call a First Meeting of Creditors. You are required to attend the meeting and it will be at this point that the acceptance or rejection of your consumer proposal will be decided. It may involve some negotiation to reach a favourable outcome for you, but the Proposal Trustee will be there to assist you. Most often, these meetings are not well attended and it will only be you and the Proposal Trustee deciding over a faxed or emailed counter offer. If your creditor votes no, and does not request a meeting of creditors, that vote is not taken into consideration.

For Division I proposals, of the claims filed, if acceptance by a majority in number that represents 66 2/3% or more of the total debt, is not provided, then the debtor is automatically bankrupt at that time.

For consumer proposals, yes, but your creditors are likely to accept your consumer proposal if it is reasonable. If a majority of your creditors do not feel that your consumer proposal is reasonable, they may reject it and you will have to consider other options. It is at this point you may want to consider bankruptcy.

For Division I proposals, yes, your Division I proposal can be refused.

No, the Bankruptcy and Insolvency Act specifically forbids an employer from dismissing, suspending or laying off an employee solely because the employee has filed a proposal.

The settlement that you can make with your creditors, which is on your terms, may of course include that you maintain and keep your principal residence if you so desire. We have guided many clients successfully through this process over many years. Of course, if the residence is too expensive for the family’s budget, one must sometimes make the hard decision. But rents are expensive too, and so is the emotional and real cost of displacing a family to a new location. In the event where it is determined that you are probably better off with a bankruptcy, we do have strategies to assist you in retaining the ownership of your house. These are based on your unique circumstances, the valuation of the house, the mortgages in place, your equity in the house, and your available cash flow. If retaining the house is a sensible decision from an emotional, family and financial viewpoint, then we can assist to make it happen.

No, a landlord cannot evict or terminate your lease just because you filed a proposal.

No, your fuel, water, electricity and telephone services cannot be disconnected just because you file a proposal, even if you are in arrears. However, a public utility is not obligated to supply you with services in the future unless you provide a cash deposit.

Yes, your personal property is not surrendered to the Trustee as it is in a bankruptcy. You maintain the payments on your secured assets such as your house and vehicle, assuming you want to keep them. You do have to disclose to the Proposal Trustee what major possessions you own, and that gets disclosed on the proposal documents.

Personal income tax, HST, GST and QST, are all debts that can be compromised in a proposal. If the debt is large enough, you should see a Trustee immediately. A search of the Personal Property Security Registry or land titles will reveal whether Canada Revenue Agency has filed a secured claim against you. Source deductions cannot be compromised and must be paid in full within six months of the Court approval of the proposal. It should be noted that if you have a very large tax debt, Canada Revenue Agency tends to take an active part in the proposal negotiations, unlike most other creditors. This means they may request a meeting with you to discuss your debt.

The creditors should stop pressuring you immediately after they are notified of your proposal, whether it’s by you when they call or by receiving the proposal documents from the Proposal Trustee. It should be noted that in reality sometimes creditors and collection agencies do not stop harassing and it takes a call from the Proposal Trustee to get them to stop; they don’t always follow the rules. As far as garnishment orders go, if your wages are presently being garnisheed and you file a proposal, the garnishment will, in most cases, stop.

The Proposal Trustee must send the proposal documents to the creditors within five days of the date of the filing of your consumer proposal. For a Division I proposal, the Proposal Trustee must send the proposal documents to the creditors 10 days prior to the mandatory meeting of creditors. If creditors contact you between the time you file the proposal and the time they are notified of the proposal, you need only advise them you have filed a proposal and refer them to the Proposal Trustee. You are not required to provide them with any additional information.

The Proposal Trustee provides limited financial counselling which will help you better manage your money so that you can meet the terms of the proposal. Ultimately, you are responsible for maintaining the terms and not defaulting.

You must attend two counselling sessions in order to complete your consumer proposal. The counselling is normally one on one with yourself and your Trustee firm. Counselling sessions cover areas such as: money management skills/budgeting; enhancing clients’ well being; improving money management skills; goal setting; implementing lifestyle changes; how to prevent a relapse; securing family co-operation; and examining what brought about financial distress. Counselling sessions are not required for Division I proposals.

The rules regarding missed payments depend on the type of proposal you file. If you file a consumer proposal you can only miss two payments in total. The Proposal Trustee can add these missed payments on to the end of your term.If you fall behind on your payments to the extent of three months’ worth of payments, your consumer proposal is automatically annulled. At this point, your debts will be reinstated and your creditors may resume pursuit of the debt. Your consumer proposal can only be amended with the approval of the creditors. It is unlikely that creditors will accept a lesser amount should you be unable to meet the terms of your existing agreement. You may consider filing an assignment in bankruptcy at this point.

For a Division I proposal, typically the term of the proposal allows the debtor to miss up to 3 payments. When 3 payments are missed, the Proposal Trustee sends a letter to the debtor advising the debtor to rectify the default within 30 days. If the default is not rectified, the Trustee sends notice to the creditors that it is the intent of the Trustee to seek its discharge. At this point, your debts will be reinstated and your creditors may resume pursuit of the debt.

In a consumer proposal, the Proposal Trustee’s fees are paid according to a government tariff and are paid from the money you pay to the Trustee under the proposal. You do not pay any hidden fees. When the Trustee is helping you to construct the proposal, the Proposal Trustee will provide you with detailed information in respect of the costs. In a Division I proposal, the Proposal Trustee’s fees are a negotiated term of the proposal and may be paid from the money you pay to the Trustee under the proposal.

No, depending on your unique financial and family situation other alternatives may be more appropriate.

These options include:

• consumer bankruptcy;
• a refinance of your house or property;
• financial or credit counselling; and
• debt consolidation loans.

All of these options can be discussed in detail when you meet the Proposal Trustee.

No, you are required to include all of your unsecured creditors, including debts you owe to your family and friends. However, unlike in a bankruptcy, if you have a credit card that has a zero balance on it, you are not required to list it as a creditor.

To obtain more information you should consult with one of our Directors. Call us today to book your free, personalized, confidential, no obligation consultation at 613-237-5555 or toll free at 1-800-517-9926, or email to info@doylesalewski.ca.