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Deciding whether filing a consumer proposal is the right choice for you can be a big decision and a stressful one at that. Regardless of the outcome, a good place to start is by meeting with a Licensed Insolvency Trustee. Then, together, you can complete an assessment and determine what the best debt relief option for your unique situation is. 

What Is An Initial Assessment In A Consumer Proposal? 

Your first meeting with a Licensed Insolvency Trustee is called an initial assessment. This meeting is always free and without any obligations. It’s simply meant to make sure that a consumer proposal is in fact, your best option.

How Does A Consumer Proposal Work During An Initial Assessment?

The purpose of this assessment is to evaluate your financial situation and to have your options laid out. Always keep in mind, the more information you can provide at this meeting, the more accurate the outcome of the assessment will be. 

Your Personal Situation

During your initial assessment meeting, your trustee will review all details of your financial situation. You will need to provide the following information:

  • Identification
  • Family circumstances
  • Assets
  • Creditors
  • Income and expenses
  • Cause of your financial difficulties

Other Financial Information

You will also need to provide a variety of other information at various times during the creation of your consumer proposal. You should prepare the following information:

  • Your liabilities
  • Your household income and expenses (your budget)

What Happens After The Initial Assessment? 

After your trustee has assessed your personal financial situation they will be able to provide you with information concerning all of your debt relief options, including a consumer proposal. There may be quite a range in terms of options. It is very important to weigh each option closely. Once you have completed this initial assessment, you will have a much better understanding of where you’re standing financially; along with which alternative will likely be the most appropriate.

Possible Options

It’s possible that after your initial assessment has been completed that your trustee will suggest alternatives to filing a consumer proposal. Here are some of the alternatives that may be presented to you:

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What Is A Consumer Proposal?

A consumer proposal can be understood as an alternative to personal bankruptcy. It is effectively an agreement between you and your creditors. Your creditors will agree to your terms if they are fair enough. A Licensed Insolvency Trustee will create, mediate and file your consumer proposal.

Your trustee will create a proposal and present it to your creditors. If creditors that represent 50% or more of your debts accept your proposal then the rest must cooperate. Typically you only need to pay back a certain percentage of your total debts in an affordable monthly payment. You’ll also have a total of 5 years to complete your proposal.

How Does A Consumer Proposal Work?

You don’t have to worry about losing all your assets when you file for a consumer proposal, unlike bankruptcy. Instead, a consumer proposal allows you to avoid surrendering your assets and reporting your monthly income and expenses.

A consumer proposal is a legally-binding arrangement made with your creditors and is facilitated by a Licensed Insolvency Trustee (LIT). In this agreement, your creditors agree to let you repay a portion of your outstanding balance. Your creditors will eliminate the debt once your proposal is complete.

You may consider a consumer proposal if you have less than $250,000, not including a mortgage.

Here are the steps involved in how a consumer proposal works.

Determine The New Repayment Plan 

Your trustee will review your monthly cash flow and help you come up with a workable budget that allows you to make payments toward repaying your creditors based on a new repayment plan. Using this information, your trustee will help you come up with a monthly payment you can afford. 

File Your Proposal And Wait For Creditor Voting

Once your documents are signed and filed, you’ll have immediate protection from your creditors, which means you won’t have to make payments any longer and any wage garnishment or collection calls will stop. Your creditors will review your proposal and can vote to either accept it, reject it, or do nothing. Your consumer proposal is automatically approved unless over 25% of the creditors request a meeting of creditors. If over half of the voting creditors vote to accept your proposal, it is approved.

Make Your New Payments

Once your proposal is approved, you’ll start making repayments according to the agreement and will be required to attend two credit counselling sessions. At any point, you can repay your proposal early if you come across extra cash, or defer up to two payments if you have trouble keeping up. 

Benefits Of Working With The Right LIT During An Initial Assessment

Being able to discuss each option with your trustee is very important. It is important to find a trustee that you have a good rapport with. If you feel you don’t want to work with whomever you meet, you can always arrange to meet with another trustee.

When it comes to this initial process, everyone acts differently. Some people will make an immediate decision based on the list of options they just read. Others will require a lot more time and want to weigh the pros and cons of each option. Always remember that this is your life so it’s your decision. The Licensed Insolvency Trustee is there just to help you weigh these pros and cons, not to push you in a certain direction.

The Bottom Line

A consumer proposal is a drastic step to take when dealing with unresolved debt, as it can have a negative effect on your credit score for a few years. That said, the protection it can offer you might make it worth it, especially if you’re unable to continue paying your creditors in full at the current interest rate. Reach out to a trustee to see if a consumer proposal is right for you.

How Does A Consumer Proposal Work FAQs

What happens if your creditors reject your proposal?

If your consumer proposal is turned down by your creditors, you can modify and resubmit it. Otherwise, consider other options to deal with your debt issues, including bankruptcy. Speak with your trustee to see what options are best for you.

When does a consumer proposal make sense?

Speak with a trustee to determine whether or not a consumer proposal is appropriate in your situation. These professionals will assess your financial circumstances and educate you on the benefits and drawbacks of a consumer proposal, as well as other options that may be available.  Generally speaking, a consumer proposal might make the most sense if you’re unable to pay back your creditors in full, but you can afford to make modified monthly payments.

How much debt do you need for a consumer proposal?

To file a consumer proposal, you should owe at least $1,000 in unsecured debt but no more than $250,000.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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