Consumer Proposal Canada: How does it work?

Category: Consumer Proposal (16) comments

A consumer proposal is an alternative to bankruptcy in Canada. A licensed consumer proposal administrator works with you to negotiate a settlement with your creditors. For example, if you owe $40,000 on credit cards, bank loans, payday loans and taxes, it might be possible to negotiate a settlement where you pay half, or even a third of the full amount owing.

An example of a consumer proposal would be where you agree to pay $300 per month for 50 months, for a total of $15,000, and your creditors agree to eliminate the rest of your debt.

Why would your creditors accept a consumer proposal?

The answer is simple: they do not want you to go bankrupt.  They would prefer to receive something, instead of perhaps nothing in a bankruptcy.

To determine if a consumer proposal makes sense for you, make a budget and determine what you could afford to pay each month if that payment included all of your unsecured debts.  (You could still keep paying your secured debts, like your mortgage and car loan).

You should then talk to a consumer proposal administrator, who is also a licensed bankruptcy trustee, to determine if the amount you can afford to pay each month would be a sufficient settlement for your creditors.

If it is, a consumer proposal may be a great way to avoid filing bankruptcy in Canada.

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  1. mary s.

    I owe apx 21k in debt
    8300 in taxes from 2009 forward and have been making some monthly payments
    11000 credit card debt no payments since july 2014
    2500 dept store debt making monthly minimum payments
    In 2013 I was laid off from my job EI ended Oct 2013 My income is now 2000 monthly 1000. cpp and oas 1000 cash for housework I have apx 250 a month left when I do my budget for a consumer proposal I also claimed bankruptcy in 2001 Will my creditors accept a consumer proposal paying 250 a month for 5 years or should I claim bankruptcy a second time. By the way I am still seeking employment but no luck yet Please give me some advice I would really like to do a consumer proposal My taxes are all filed and up to date except for the year 2014 I have no property or assets Thank You

    1. J. Douglas Hoyes

      Yes, your creditors would likely accept a consumer proposal, but you have to decide if you can afford to pay $250 per month (or whatever) on $2,000 per month in income. If your budget allows it, it is an option to consider.

      Since you were bankrupt before, a second bankruptcy at your current income would last for 24 months; if your income increases it could last for three years. You have three options:

      1. do nothing at this time, since without employment income you have no wages to garnishee; obviously this doesn’t deal with your debt
      2. file a consumer proposal, if you can afford it
      3. file a second bankruptcy, which will last for at least 2 years, but will probably be less expensive than a consumer proposal.

      It would be wise to consult with a licensed trustee to fully explore your options.

  2. Tina

    My husband and I filed bankruptcy in March 2013. We were not aware that the payments were going to continue for many more months. Currently, in order to get discharged, I am asked to pay $781 per month for a total of over $9000. My husband owes over $5000.
    We earn even less money than we have been earning and the mtg payment has increased from $800 plus to over 1000. We have a second mtg which requires payment of almost $400. This is outrageous. We are unable to get discharged. Can we file a Consumer Proposal now? and What happenes to the Order of the Court regarding the above amounts?

    1. J. Douglas Hoyes

      Tina: Yes, you can file a consumer proposal at any time. If your creditors accept it, and you complete the proposal, the bankruptcy is annulled. As your story demonstrates, it is very important, before starting a bankruptcy, to have your trustee estimate your payments, based on your estimate of your expected income, so that you can decide if a bankruptcy is the correct option.

  3. Linda

    My almost 90 year old mother was diagnosed with dementia and has had symptoms for many years … she is under the supervision of social workers and various health specialists. One of the behaviours we noticed was she was giving away money – we don’t have too many specifics, but she had made some trips to money mart/cash stops during lucid periods (she was then, but not now physically active, thus able to get on the bus in between visits by the care workers to her apartment and they’d report her missing). She is not cognitively aware of the repercussions, then and less so now. Even last year she could barely hold a conversation. Its astounding anyone would loan money to someone so vulnerable.

    She had started going to money marts as the dementia took hold, we don’t know what happened to the cash – probably gave it away or lost it. And my brother (who has banking power of attorney) offered to pay it off if they would not serve her any more.

    Well apparently they took the payments my brother was making and continued to serve my mother with further loans, it seems evident, as on Friday night a nurse called me to say she witnessed a phone call from (she believed) money mart/collection agency which sent mum into a downward spiral as she was being bullied and asked for information. From this phone call the nurse heard $15,000 and $300 a month and she called me. Mum is now in hospital as dementia makes elderly people volatile to emotional upset which was the result of their harassing phone call.

    As income all she has is oap. I have absolutely no qualms about her declaring bankruptcy esp. since its unethical loan sharks involved. I don’t have too many details, but I will appreciate a phone call to understand what steps are involved to get these criminals away from her.

    Thanks for any insights on how to do this.

    1. J. Douglas Hoyes

      Hi Linda. I suggest you call one of our trustees to review the options for your mother. Here’s the link:

      There are two issues. The obvious issue is keeping your mother from continuing to borrow; it appears that she is now unable to do that. It may also be prudent to change her phone number so that she isn’t getting phone calls, which should reduce her stress.

      The next issue is to decide whether or not a bankruptcy is necessary. Since she only has pension income there is no way for a payday loan company to directly garnishee her pension, so the best option may be for her to open a new bank account at a new bank, deposit her pension there, and stop paying them.

      Again, this is an issue to discuss with a trustee so you can explore all of the options.

  4. Janet

    Hi I declared bankrucpy about 6 years ago and now discharged .
    But I somehow fell back off track and want to file bankrucpy the second time
    If I go bankrucpy , do I have to pay the trustee or pay a low monthly payment .. I’m lost?????

    1. J. Douglas Hoyes

      Hi Janet. If you file bankruptcy you are generally required to make a payment each month; that payment is set based on your income. A second bankruptcy will last for a minimum of 24 months, so it may be wise to consider other options, like a consumer proposal, as an alternative to a second bankruptcy.

      Since each situation is different, I suggest you contact a licensed insolvency trustee for a no charge initial consultation to review your situation in detail and provide you with your options.

  5. John

    If John Doe files for bankruptcy in 2009 and in 2017 it is completely gone from his credit file at both Transunion and Equifax, when John applies for a car loan, if they ask on their application form “have you EVER been bankrupt” (not just in the last 7 years), and John writes no, since for sure he saw it is off his credit files with Transunion and Equifax, what could then happen? Would the lending institution even know?

    1. J. Douglas Hoyes

      In general, no, the lender would not know that John ever went bankrupt if all they check is his credit report, and the bankruptcy is now purged from his credit report. It is possible to do a bankruptcy search in the government’s database, but that costs money so most banks don’t bother. Also, they really only care about your recent history, not about what happened more than 7 years ago, so it is unlikely they would find out. However, if the question is “have you ever been bankrupt”, the legally correct answer would be “yes”.

  6. Jane doe

    recently filed for bankruptcy and have 2 questions : this is a 2nd bankruptcy and I recd a draft report that says my bankruptcy has been extended to 3 years because I had surplus income. But I was reading on a 2nd bankruptcy they are suppose waito until 21 months before making that decision? Also…I had a secured vehicle but lost a large portion of my income and gave up the vehicle and there is now 18k in unsecured debt that the finance company is trying to collect. Could that not be rolled into the bankruptcy? Now the trustee wants a payment mthly and the fiance company wants their money. What’s the point of the bankruptcy if I still have debt and they want payments. Would it now be better to do a proposal. I am now earning about 2100 net mtly and I suppose I would owe approx. 60k in debt if I included the now 18k unsecured car balance. I am a mess!!! I am 60 years old and buried alive.

    1. J. Douglas Hoyes

      These are excellent questions; you should contact your trustee and ask to set up a meeting to have these questions answered. Since they have your complete file, they can answer your specific questions.

      In general, when a bankruptcy is filed, the trustee estimates how long it will take to complete. In your case it appears that the trustee has estimated it will take three years, because you are a second time bankrupt with surplus income. The final decision will be made after 21 months, when the trustee can assess your actual income, so the decision is not final until that time.

      As for a secured vehicle, if at the time of the bankruptcy you surrendered the vehicle, the resulting shortfall is included in the bankruptcy. Your trustee can provide them with the necessary paperwork. If you kept the vehicle and then were unable to make the payments, you are liable for the shortfall. Again, when you meet with your trustee they can explain all of these options in detail, given your specific facts.

  7. Pat

    Is filing a consumer proposal as invasive as a bankruptcy? Does the trustee review all your bank financial statements, or do they simply base the proposal on your debts vs your income to determine what you are able to afford to pay under a consumer proposal.

    1. Ted Michalos

      The investigative rights of a trustee are the same under a bankruptcy or a proposal. The concept behind a proposal is that you are offering to repay part of your debts – the catch you need to offer more money than your creditors may receive if you file for bankruptcy. That means the trustee has to consider both options and take a good look at your situation…

  8. Donny C.

    Hi my question is that in a consumer proposal do you receive all the wages that were garnished back or just a portion from time of application.

    1. J. Douglas Hoyes

      Hi Donny. If your wages were garnisheed prior to filing your proposal, your trustee would have sent a request to your employer (and the creditor, and the court) to stop the garnishment, and return any funds to the trustee. Whether or not and funds are returned from the period prior to the proposal being filed will depend on whether or not the funds were already sent to the creditor. If they were, you won’t get them back. However, anything garnisheed since the proposal was filed should be returned to you, again, subject to whether or not the funds were already remitted to the court or the creditor.

      You should contact your trustee and ask them to get a full accounting of what happened to the funds, and request that any funds taken since the proposal started be returned to you.


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