If you’re drowning in debt but want to avoid bankruptcy, a consumer proposal may be a viable option. Consumer proposal offers a way to help you deal with your debts and repay what you owe in a manageable way without losing your assets.
Read on to find out more about filing a consumer proposal in Ontario, including how it works, what types of debts it can deal with, and how it may affect your credit.
Consumer Proposal Overview
| What It Is | A legally binding debt settlement agreement filed under the Bankruptcy and Insolvency Act (BIA) through a Licensed Insolvency Trustee (LIT). |
| Program Features | Settle debts by repaying a portion of your total unsecured debts over a maximum period of 5 years. |
| Who Can File | Individuals with up to $250,000 in unsecured debt. |
| Key Benefit | Settle debts without losing certain assets. |
| Credit Rating Impact | R7 rating.Remains on credit report for 3 years after completion (or 6 years from filing). |
| Cost to File | Fees are regulated by the government and included in your monthly payment. No upfront fees. |
What Is A Consumer Proposal?
A consumer proposal in Ontario is a legally-binding process that is facilitated by a Licensed Insolvency Trustee (LIT). It’s essentially an offer to pay your creditors a portion of what you owe, or a request to extend the amount of time you have to pay off your debts.
How Does Consumer Proposal Work?
The goal of a consumer proposal in Ontario is to provide consumers with a legal and manageable way to settle unsecured debts without declaring bankruptcy. You’ll make payments to your LIT, who will then distribute the funds to your creditors on your behalf.
Filing a consumer proposal will protect you from debt collectors. For example, they won’t be able to garnish your wages, no more interest will accumulate, and you are not in jeopardy of losing your home or assets.
However, your credit will take a hit for a certain number of years, though that hit won’t be as extreme as it would be during a bankruptcy.
Learn more: Consumer Proposal
Are You Eligible To File A Consumer Proposal?
To be eligible for a consumer proposal, you must:
- Be a Canadian resident
- Have $250,000 or less of unsecured debt
- Be an individual (including sole proprietors). Businesses and corporations are not eligible.
| Types Of Debt Included Consumer proposals typically include unsecured debt, such as: – Credit card debt – Payday loans – Personal loans – Lines of credit – Student loans (7+ years old) Debts Not Included Secured debts are typically not included in a consumer proposal, such as: – Mortgages – Car loans – Student loans (less than 7 years) – Child support & alimony – Court fines & penalties |
How To File A Consumer Proposal In Ontario?
You cannot file a consumer proposal yourself. You must contact a licensed insolvency trustee to file for you. Here are a few LITs you can contact:
Licensed Insolvency Trustees In Toronto
| BDO First Call | – 20 Wellington Street East, Suite 500, Toronto, Ontario, M5E 1C5 – 222 Bay St., Suite 2200, Toronto, Ontario, M5K 1H6 | Learn More |
| Remolino Associates | – 1180 Danforth Avenue, Toronto, Ontario M4J 1M3 – 4711 Yonge St. 10th Floor, North York, Ontario M2N 6K8 | Learn More |
| Hoyes Michalos | – 8 King Street E, Suite 800, Toronto, Ontario – 2 Bloor St E, Suite 3500, Toronto, Ontario |
What To Expect When You Meet A Licensed Insolvency Trustee
The process of meeting with your LIT will involve the following:
- Initial Consultation: The first thing that will take place is an initial meeting between you and your LIT (usually free). They will require all relevant financial information to help them review your situation.
- Assess Eligibility And Debt Relief Options: Your LIT will assess your eligibility and help you determine if a consumer proposal is the best option for you. If so, your financial details will help them come up with a proposal for your creditors and a payment plan that you’re financially able to manage.
| Note: Be sure to find an LIT that you’re comfortable around, can trust, and will get along with. You will be dealing with them frequently for a decent amount of time. So, if you can’t tolerate them or don’t trust them with your personal information, the relationship will not work. |
What Happens When Filing A Consumer Proposal?
- Draft Proposal: Your trustee will help you draft a formal proposal, which aims to balance your repayment capacity with creditors’ expectations. The proposal will include information such as:
- How much you offer to pay creditors (lump sum or installments)
- The time period to make payments (up to 5 years)
- The assets you intend to keep.
- File Proposal: Your trustee will file the proposal with the Office of the Superintendent of Bankruptcy. Creditors have 45 days to review and vote on the proposal.
- Make Payments: If the proposal is approved, you will be responsible for making monthly payments over the course of an outlined schedule. During that time, you will also be required to attend a few financial counselling classes.
| Note: Once a consumer proposal is filed, a legal Stay of Proceedings takes effect. Meaning, any lawsuits or wage garnishment imposed upon you by creditors or debt collectors will also cease. Essentially, all debt collection efforts will cease. |
What Happens If The Creditors Reject Your Proposal?
If your proposal was not accepted, you can make amendments and resubmit. You can also consider other available options, or you can simply file for bankruptcy. However, filing for bankruptcy should be your last resort.
Learn more: Can I Amend My Consumer Proposal?
Will Your Assets Be Protected?
One of the biggest advantages of filing a consumer proposal in Ontario is that it lets you keep your assets while settling your unsecured debts. However, the proposal must be fair, or else the creditors may reject it, leading you to file for bankruptcy.
Can I Keep My House?
Yes, it is possible to keep your house when filing a consumer proposal in Ontario. However, you must meet certain conditions, such as:
- You continue making your mortgage payments
- You don’t have a large amount of equity in your home
In a consumer proposal, creditors expect to receive at least what they would in a bankruptcy. As such, if you have a high amount of equity in your home, you’ll need to offer more in your proposal to satisfy your creditors.
Here’s an example:
Let’s assume the following:
- Your home value: $600,000
- Mortgage owing: $200,000
- Closing costs: $25,000
- Your net equity: $375,000 ($600,000 – $200,000 – $25,000)
- Total unsecured debt you owe: $150,000
- Your Consumer Proposal offer: $90,000 (spread over 5 years)
In this example, your creditors may reject your proposal because, in a bankruptcy case, your home’s equity ($375,000) can be used to pay off more of your creditors’ debt.
Can I Keep My Car?
Yes, you may be able to keep your car when filing a consumer proposal in Ontario, whether you own it outright or are still making loan payments.
- If You Own the Car Outright: Similar to a house, you can keep the car as long as its value is considered and reflected in the consumer proposal payments.
- If You’re Still Financing: You can keep the car as long as you continue making loan payments.
Will A Consumer Proposal Affect My RRSPs?
Your RRSPs are 100% protected when you file a consumer proposal in Ontario. So, you don’t have to liquidate your RRSPs to settle your debts. Even recent contributions are protected, unlike in bankruptcy, where contributions made over the last 12 months may be claimed by creditors.
Will My TFSA Be Affected?
No, your TFSA is not affected by a consumer proposal in Ontario. You can keep all funds in your TFSA with no need for liquidation or seizure. Since a consumer proposal is designed to settle unsecured debts, it won’t touch your registered savings, like a TFSA.
Final Thoughts
A consumer proposal is one of many helpful debt relief options offered in Ontario and the rest of Canada. While it can be damaging to your credit, it can provide you with quick financial relief and creditor actions while allowing you to keep much of your assets. If you’re currently looking into filing a consumer proposal, Loans Canada is here to help.
