What Is a Consumer Proposal?
A consumer proposal is a legal agreement between you and your creditors to repay part of the debt that you owe. The arrangement is governed by Canada’s Bankruptcy and Insolvency Act and is proposed to your creditors by a bankruptcy trustee as an alternative to you declaring personal bankruptcy. The amount that the trustee will propose you repay is largely based on your income and what you own. What makes consumer proposals attractive is their potential to significantly reduce the amount of debt you’re required to pay your creditors. However, this comes at a cost.
A consumer proposal can only be arranged by a government licensed bankruptcy trustee. It costs about $750 to file a proposal, and if it’s accepted by creditors, it costs another $750 to proceed. The trustee also retains 20% of future payments under this arrangement as a fee for administering the proposal. To be legally binding, the creditors who hold the majority of an individual’s debt must agree to the proposal. Once they do, the agreed amount is repaid typically over 4 to 5 years. The maximum repayment length possible is just under 5 years.
While a consumer proposal is an alternative to declaring personal bankruptcy, it’s promoted by some as an option to lower monthly payments, consolidate unsecured debts into one monthly payment, and eliminate personal debts. While these are great reasons to consider pursuing a proposal, it’s also important to consider the drawbacks and other alternatives to filing a proposal. This will help you make sure you’re making the right decision that you’ll be satisfied with in the long run.