Consumer debt is a major problem in British Columbia and Canada as a whole. In BC, the average amount of consumer debt (not including mortgage debt) currently sits at $23,522, which is just above the national average of $22,125.
That’s a lot of money to have to pay back, which can often take years to settle. In many cases, British Columbia residents are unable to repay their debt at all, leaving them in a position to seek out options to help them alleviate their debt.
One such option is a consumer proposal, which is a process that helps consumers cut down on their debt and eliminate all the negative aspects that come along with it.
What is a Consumer Proposal?
A consumer proposal is a legal process that consumers seek when they are struggling to pay down their debt. This process involves having a Licensed Insolvency Trustee (LIT) develop a proposal to be presented to your creditors. This proposal is essentially a negotiation with your creditors to either request to have the amount of time to pay back loans extended or an offer to pay back creditors a portion of the money that is owed to them.
This proposal will be filed with the Office of the Superintendent of Bankruptcy (OSB), after which you stop paying your creditors directly. Any actions to have your wages garnished or file lawsuits against you are also stopped.
The proposal is then submitted by your trustee to your creditors and will detail your personal situation and the reasons why you are having troubles with your finances. Your creditors will then have 45 days to respond to your proposal by either accepting or rejecting it.
A creditor might request a “meeting of creditors,” as long as you owe them at least 25% of the entire value of their claims. The OSB may also require a meeting of creditors at any point within the 45-day timeframe, which must take place no more than 21 days after being called. At the meeting, the creditors vote to either accept or refuse the proposal.
If creditors wish to reject the consumer proposal, a meeting of creditors must take place whereby your creditors will state their case and defend their reasons for their objections. If, on the other hand, they agree to the proposal, no meeting needs to take place.
Want to pay off your consumer proposal and start building credit faster?
Reasons Why Someone Might Need to File a Consumer Proposal
There are a number of reasons why you might want or need to file a consumer proposal in British Columbia. Your Licensed Insolvency Trustee will explain all your options to you in order to help you decide which avenue is best for your particular financial situation.
Read this to find out how a consumer proposal will affect your credit.
That said, any of the following situations may be reason enough to file a consumer proposal:
- You have debt more than $5,000 (but not more than $250,000)
- You’re capable of paying back part of your consumer your debts, but your creditors aren’t giving you enough time to do so
- You’re being harassed by collections calls
- You’ve got high-interest charges
- You’re being threatened with legal action
- Your wages are at risk of being garnished
- You want to avoid bankruptcy
If any of these situations apply to you, a consumer proposal in BC might be a viable option.
Throughout your consumer proposal, you have specific responsibilities to uphold, including the following:
- Provide your trustee with a comprehensive list of all of your assets and liabilities
- Go to the meeting of creditors if one is called
- Attend two credit counselling classes
In general, it’s your responsibility to make sure the consumer proposal process is carried out without a hitch and you assist your trustee in any administrative duties needed to complete the process.
Want to learn about the consumer proposal initial assessment? Read this.
Filing for Bankruptcy vs Filing a Consumer Proposal in British Columbia
The decision to consider a consumer proposal versus bankruptcy should not be made lightly. Everyone’s situation is different, so it’s important to carefully assess your particular position in great detail. You should also speak with a Licensed Bankruptcy Trustee to go over your financials and make the best decision.
For some information about the bankruptcy process in British Columbia, click here.
Both bankruptcy and consumer proposals are meant to help alleviate British Columbians of their debt. Both options are designed to:
- Provide you with debt relief
- Stop collection calls
- Stop legal actions against you
- Provide counselling to better manage your finances
That being said, there are several differences between consumer proposals and bankruptcy that consumers should be aware of before making the decision between the two:
Consumer proposals have debt limits – While bankruptcy does not have any debt limits, consumer proposals can only be filed for no more than $250,000 in non-mortgage debt.
Consumer proposals don’t require monthly income statements – With bankruptcy, you will be obligated to submit your monthly income and expense statements as part of your overall budget. This is not necessary with consumer proposals.
Consumer proposals allow you to keep all of your assets – Filing for bankruptcy typically means surrendering many of your most valuable assets, including much of the equity in your home or vehicle. With a consumer proposal, you can keep all of your assets, though you will still be responsible for continuing to make your loan payments that still exist for these assets.
Consumer proposals take a lot longer – The bankruptcy process usually results in a discharge of nine months (though this can sometimes be extended to as long as two years). Consumer proposals take longer than bankruptcies; it can often take as long as three to five years to pay off all of your debt with a consumer proposal.
For some more differences between debt management programs and consumer proposals, look here.
The decision to file a consumer proposal shouldn’t be made lightly. It’s crucial to assess all options to relieve debt and take measures to improve your financial situation before it continues to get worse. Speak with a Licensed Insolvency Trustee to evaluate all of your options and determine if a consumer proposal is right for you.