Consumer Proposal Kunjar Sharma

Understanding the Consumer Proposal Process

Financial difficulties can arise at any time. More often than not, a Consumer Proposal can help you satisfy your creditors without having to go bankrupt.

Kunjar Sharma & Associates Inc. has filed over 6,000 Consumer Proposals and recognizes the need to help you better understand the process and how it may help address your financial needs. The purpose of this booklet is to explain in simple terms the duties, the restrictions and the responsibilities imposed on a person who files a Consumer Proposal.

The provisions of the Bankruptcy and Insolvency Act (“the Act”) dealing with Consumer Proposals are intended to help reduce the number of bankruptcy filings by allowing the consumers who owe less than $250,000 (excluding mortgages on their principle residences), to negotiate with their creditors for the reduction of their debt and/or for an extension of the time for payments of their debts. The procedure to be followed for Consumer Proposals is very streamlined.

What is a Consumer Proposal?

A legal process that provides a debtor or a bankrupt with an opportunity to modify his/her payment to creditors by extending the time for payment or reducing the amount to be paid, usually over a period of time.

Purpose

The Purpose is to give a debtor or a bankrupt an opportunity to make a settlement with his/her creditors while avoiding bankruptcy. Executions, garnishes, and other actions by creditors will be stopped once it is filed. Interest and penalties being applied to debts will also be stopped.

The following warning signs may indicate you need the assistance of a Licensed Insolvency Trustee:

  • Calls from collection agents
  • High credit card debt
  • Being turned down for loans
  • Low Credit Score
  • Making only minimum monthly payments
  • Garnishment of paycheque or bank account

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Who can make a Consumer Proposal?

  • To qualify to make a Consumer Proposal a debtor must owe between $1,000 and $250,000 (excluding the mortgages on a personal residence). If the debts exceed $250,000, there are other provisions of the Act to deal with these debts.
  • An individual who has filed an assignment in bankruptcy may make a Consumer Proposal, (prior to discharge) if the Inspectors, if any, have given their approval.
  • Two or more individuals may file a joint Consumer Proposal if the Consumer Proposals can be reasonably dealt with together because of the financial relationship of the consumer debtor’s involved (e.g. married couple, common-law partners).

Major Steps

  1. Contact the Trustee and file the Consumer Proposal.
  2. The creditors vote on the acceptance of the Consumer Proposal.
  3. Once the Consumer Proposal is accepted, the debtor makes payments to the Trustee, who in turn makes payments to the creditors according to the terms of the Consumer Proposal
  4. If the Consumer Proposal is not accepted, the debtor will have to consider other alternatives.
  5. If the debtor defaults on his/her payments, the Consumer Proposal will be annulled.
  6. Attend counseling sessions as required.
  7. Once the payments are completed, the Trustee issues a Certificate of Full Performance of Consumer Proposal.

How is a Consumer Proposal different / better than a bankruptcy?

  • Consumer Proposal avoids bankruptcy and the stigma associated with being a bankrupt.
  • Monthly payments are based on your income and budget not the Surplus incomes as set by Government Standards used in a bankruptcy scenario. There is no change to the payment amount if your income increases.
  • Personal assets that may be seized in a bankruptcy such as RESP’s, your house or car can be protected.
  • Once it is approved, your only reporting requirements to the Administrator is making the monthly proposal payment (automatic withdrawal) and attending two counseling sessions.
More Details

Contact a Trustee who will act as your Administrator

The first step in the process is to contact a Trustee in our office. A Trustee is an individual or corporation who is licensed by the Government to administrator (the “Administrator”) bankruptcies and Proposals.

The Administrator will inform you of the effects of a Consumer Proposal and will prepare the necessary documents to file the Consumer Proposal with the Office of the Superintendent of Bankruptcy.

Notification

Upon filing of the Consumer Proposal with the Superintendent, the Administrator will send a notice of the Proposal, together with a copy of the proposal and some financially relevant personal information of the debtor and to all known creditors. At the time of filing the proposal, a creditor is prohibited from instituting or continuing any legal action unless they obtain permission (leave) from the Bankruptcy Court. Interest on the amounts owing to the creditors stops accruing at the time of filing the proposal.

Voting

The unsecured creditors will have up to forty-five days to request a meeting to vote on the Consumer Proposal. If creditors do not respond, they will be considered to have accepted the proposal.

Unsecured creditors may request a meeting. If the unsecured creditors requesting a meeting are owed more than 25% of the total value of creditors who have responded to the proposal, the Administrator will arrange a meeting to vote on whether to accept or reject the proposal. At the meeting, if the majority in value of the unsecured creditors, who are voting, accept the proposal, it will become binding on the debtor and all creditors. When the creditors accept a Consumer Proposal, it is deemed approved by the Court after fifteen days have expired, unless a court hearing to approve the proposal is requested.

Counselling

The Administrator will arrange for two counselling sessions during the proposal. The counselling will help you understand the cause(s) of your financial difficulty, which sometimes is non-budgetary. These sessions will also provide information to assist you in managing your financial affairs in the future. You must attend both of the counselling sessions. Additional counselling is available if you need more assistance.

Payments

Once the proposal is accepted, the debtor will make the payments to the Administrator, as provided for in the proposal. Payment terms may involve a one-time lump sum payment or monthly payments for a period of no more than five years or a combination of both.

The Administrator will distribute the funds received by making dividend payments to the creditors in accordance with the terms of the proposal.

Once all payments under the Consumer Proposal have been made, the Administrator will issue a Certificate of Full Performance, which shows that the terms of the Consumer Proposal have been completed. Any balance still owing to the unsecured creditors is legally forgiven.

FAQ

What happens if the Consumer Proposal is Rejected?

If it is not accepted by creditors you can make changes to the proposal terms, such as offering a higher monthly payment or lengthening the term of the proposal to a maximum of 5 years to see if the additional funds will change creditor’s votes.

Other insolvency options can be discussed with your Trustee, including filing for bankruptcy.

What Happens if the Debtor Stops Making the Payments?

The Consumer Proposal will be in default if:

  • You are required to make monthly payments and the equivalent of three of the monthly payments under the proposal are missed; or
  • You are required to make the payments less frequently than monthly and you miss any payment for more than three months.

If this happens, the creditors will again be able to take steps to recover their debts, less any payments paid to them during the proposal.

What Happens if the Debtor’s Circumstances Change?

The debtor is required to advise the Administrator of any changes in his/her circumstances that could jeopardize his/her ability to make the payments required under the proposal. However, this will not change the amounts to be paid as agreed to in the proposal. If the debtor’s financial circumstances change for the better, the proposal provides for it be paid faster or in full with no penalty. No additional payments are required.

How long does the Consumer Proposal Last?

It provides for payments over time up to a maximum of five years.

Does the Debtor Require a Lawyer?

Generally, a lawyer is not required. However, if the debtor feels the need for legal advice, he/she may retain a lawyer.

How are Secured Creditors Dealt With?

If a creditor has a lien on any assets (known as a secured creditor), the debtor may wish to do one of the following:

  • Surrender the asset to the secured creditor and obtain a receipt. Any balance left due after the asset has been sold by the creditor may or may not be a claim in the Consumer Proposal, depending on Provincial legislation, or
  • Make arrangements to continue to pay the secured creditor in order to keep the asset.

How does a Consumer Proposal Affect Co-signers?

It will not cancel the liability of anyone who has guaranteed or co-signed any loans. These guarantors will still be responsible for the debts less any payments the creditor receives from the proposal.

What Happens to the Debtor’s Assets?

The assets generally remain with the debtor. This includes any assets acquired during the term of the Consumer Proposal such as gifts, inheritance or winnings.

What Happens to the Credit Cards in the Possession of the Debtor?

If you file a Consumer Proposal, you will be required to surrender all of your credit cards to the Administrator. Even if they do not have a balance, a notice of the filing is submitted by the office of the Superintendent of Bankruptcy to the credit rating agencies. The Administrator will provide references for a secured credit card if one is required later on.