How does a Consumer Proposal Work?

Purpose of a Consumer Proposal

A Consumer Proposal serves as a valuable alternative for individuals seeking to avoid bankruptcy, offering relief from overwhelming debts and unmanageable payments. It provides a structured approach that allows individuals to make affordable payments towards their debt without constant creditor harassment or intrusive collection actions.

Step 1 – Consultation with a Licensed Insolvency Trustee / Consumer Proposal Administrator

To initiate the process, you will need to arrange a meeting with a licensed trustee who will assess your financial situation. This assessment helps determine if your income and personal circumstances make you eligible for a Consumer Proposal. Depending on your financial capacity, a Consumer Proposal may or may not be the best solution for your specific needs.

During the assessment, the Trustee will request a summary of your outstanding debts, your assets, the number of dependents in your family, your household income, and monthly living expenses. Depending on your unique situation, you may explore various options beyond a Consumer Proposal, and these alternatives will be discussed with you.

Step 2 – Crafting Your Consumer Proposal

The Trustee will calculate your total unsecured debts, current payments, and, taking into account your budget and living expenses, determine what you can afford to pay. For most individuals facing financial difficulties, the sum of their regular minimum monthly payments and living expenses far exceeds their available funds. In a Consumer Proposal, it is common for individuals to offer to pay only a percentage or portion of their total debts, and this offer is extended to creditors. The proposal is expected to be attractive enough to encourage creditors to accept it, thereby helping you avoid bankruptcy.

For instance, if your minimum monthly payments on a $30,000.00 debt amount to $900.00, and your remaining funds after covering living expenses total $400.00, with an additional $100.00 set aside for unforeseen expenses, you can afford monthly payments of $300.00. You might propose to pay your creditors this $300.00 per month over an extended period, possibly up to 60 months. This would amount to total payments of $18,000.00, representing 60% of your total debt, excluding interest.

Creditors are provided with a copy of your budget and may suggest adjustments to your proposal if they believe you can allocate more towards your payments. If your budget is already tight or conservative, they may not request further contributions.

The core principle of a Consumer Proposal is that it involves negotiations with your creditors. The terms of a proposal can vary based on mutual agreement between the debtor and the creditors. However, it is crucial to maintain a reasonable and fair proposal that respects your creditors' interests, as an excessively low offer could lead to rejection, leaving bankruptcy as the only recourse.

Should you decide to proceed with a Consumer Proposal, the Trustee will prepare a Statement of Affairs detailing your debts, assets, family status, monthly income, and expenses. Your proposal will be drafted for your signature and forwarded to your creditors for their consideration.