Consumer proposal basics

 Consumer Proposals are the main alternative to filing an assignment in bankruptcy. A consumer proposal is an arrangement between you and your creditors which enables you to pay a portion of your debts over an extended period of time. The amount that you pay and the length of time you pay this amount is determined in a consultation with a trustee in bankruptcy who acts as the Administrator of your consumer proposal and is based on the amount of your income living expenses and any other financial responsibilities you have. A consumer proposal is also called a “Debt Consolidation Arrangement”. 

 As in most legal proceedings, there are several forms that must be completed. A consumer Proposal in Canada can only be filed through a Trustee in Bankruptcy who is licensed by the Office of the Superintendent of Bankruptcy. Even if you have had the assistance of another financial advisor, the Trustee in Bankruptcy assumes the responsibility for the consumer proposal. This involves making sure that all documents are properly completed, that the terms are fair to both you and your creditors, filing the documents in court, notifying the creditors and tabulating the votes on the consumer proposal. You should be aware that there is no obligation by the creditors to accept your consumer proposal – they can vote yes or no – or – they can propose a counter offer, which you can in turn accept or refuse. There is often much negotiation between you and the creditors before the consumer proposal is approved. Once the proposal is approved your only obligation is to pay the amount stipulated in the consumer proposal. The creditors, who stopped all collection actions when the consumer proposal was first filed in court, simply wait for the distributions to be made to them by the Trustee in Bankruptcy who acts as the administrator of the consumer proposal. 

Shortly after you sign the papers the Administrator of the Consumer Proposal will send a report to the Official Receiver at the Office of the Superintendent of Bankruptcy in Ottawa. The report contains information about your consumer proposal (list of assets, liabilities, names of creditors, etc.) and concludes with the opinion of the Administrator as to whether or not your consumer proposal is fair and reasonable and whether or not the Administrator believes you will be able to complete the consumer proposal.

At the same time the Administrator sends a report to each of your creditors. The creditors are asked to complete a Proof of Claim form and return it to the Administrator with their vote to accept or reject the consumer proposal. If the creditors do not respond to the administrator within 45 days after the consumer proposal is filed, they are deemed to have accepted the consumer proposal.

Once the creditors have accepted the proposal, the Administrator will proceed to obtain the approval of the court for the consumer proposal. In most cases the court approves of the consumer proposal 15 days after the creditor approval. After court approval, your only responsibility is to follow the terms of the consumer proposal and attend two (2) manditory counselling sessions. The purpose of the counselling sessions is to assist you in rebuilding your credit and help you to understand how you got into financial trouble in the past. If you fail to attend either counselling session he/she is not entitled to a Certificate of Full Performance (Discharge).

Once your consumer proposal has started, if you miss three (3) payments the consumer proposal is annulled and all legal rights of the creditors are restored. The amount that you owe each creditor is the original amount that you started with less any monies that the creditors received during the consumer proposal before you missed the three (3) monthly payments.

If you find that your financial situation has changes, contact your trustee immediately. It may be possible to amend your consumer proposal by reducing your monthly payments to fit your new circumstances.

When you have completed all of the terms of the consumer proposal, the Administrator will give to you a Certificate of Full Performance. A copy is also sent to the Official Receiver. You are now relieved of all debts that were included in the consumer proposal. The Official Receiver will send a copy of this Certificate to the credit bureaus (Equifax and TransUnion) so that they can update their records.