Filing a Consumer Proposal in Ontario - What you SHOULD know

If you are thinking about filing a consumer proposal in Ontario there is a lot that you should know. Filing a consumer proposal can be a sound option for dealing with debt depending on your personal circumstances. When making a consumer proposal you are essentially making an offer to your creditors under the laws and regulations set out in the Bankruptcy and Insolvency Act (BIA). The BIA is federal legislation so the process to file a consumer proposal is the same whether you are filing a consumer proposal in Ontario or BC. 

Here is how the process works:

1.       The amount of the consumer proposal is determined using a formula based on your income and ability to repay the proposal on a monthly basis, and then that payment is multiplied by a term of 4-5 years. The sum is the amount of the proposal. This can result in the debt being reduced.

2.       Once the consumer proposal offer has been formulated, the official offer is made through a trustee in bankruptcy.

3.       Your creditors then have 30 days to accept or reject the proposal. As long as creditors that represent 51% of the debt in your proposal vote yes, the proposal is accepted. Creditors who do not respond or vote lose their vote and go on record as not opposing the consumer proposal.

4.       If your consumer proposal is accepted (and many are) you will then make a single monthly payment to the bankruptcy trustee for the term of the consumer proposal.

 Consumer proposals offer many benefits:

·         They can be paid off early so if your financial situation improves you can pay off the proposal at any time.

·         While the consumer proposal will have a short term negative impact on your credit report, the consumer proposal is removed from your credit report 3 years from the date it is paid in full, so the sooner you pay it off, the sooner you can rebuild your credit – the ball is literally in your court.

·         They stop collection action. All collection action with respect to unsecured creditors included in the consumer proposal will stop. This includes wage garnishments.

·         They offer a single monthly payment which is very convenient. 

Now that we have covered how a consumer proposal works and the benefits, let's look a little bit closer at the process of actually filing a consumer proposal in Ontario. 

Consumer proposals are administered by a trustee in bankruptcy. The trustee in bankruptcy has an obligation to act both in the best interest of yourself and your creditors. Going to a trustee in bankruptcy directly to discuss a consumer proposal is dangerous because they will probe you and use your financial information to pay your creditors the maximum monthly payment. This leaves many without much financial breathing room which is why many consumer proposals fail. Trustees are also compensated based on a percentage of your proposal. A larger proposal means more compensation for the trustee. It is for these reasons that you should seek out your own independent financial representation if you plan to file a consumer proposal. 

Hiring your own representative is a small expense that can save you thousands of dollars. A good financial consultant who is versed in the BIA can look at your financial picture and help you to craft proposal terms to push with the trustee. They can also arrange the proposal with the trustee and represent you throughout the process. This is money well spent! 

If you would like more information about filing a consumer proposal in Ontario please call DebtCare at 1-888-890-0888 or visit www.debtcare.ca.