A common question that trustees receive is, “what happens to debts after filing a bankruptcy or consumer proposal?” The legal status of the debt is very simple in a bankruptcy, however, slightly more complicated during a consumer proposal because of its length.
When filing a consumer proposal, you are effectively making an offer to the creditors to pay a specific amount or percentage of your debts over a period of time inside of 60 months (5 years). During the length of the proposal, those debts continue to exist, but the question is, where?
The simple answer: debts continue to exist with the creditor internally and at the credit bureaus.
Just like with a bankruptcy, the debts that are included in a consumer proposal stay active for the length of the process. Once the proposal is filed, and until the terms are completed or it is cancelled (annulled), the creditors do not have any rights to pursue payment for the debts and they will receive payments (dividends) from your proposal administrator as outlined in the terms of the proposal. This is why it’s so important to complete all of your duties and finish the process; if you don’t, you will still be on the hook for all debts included in the uncompleted proposal and creditors are able to re-establish the collection process.
Once all duties in the proposal are completed and your administrator files the certificate of compliance, the debts are eliminated. If however, the proposal is abandoned or cancelled for any reason, the person who filed the proposal will still be responsible for the entire balance of the debts, including interest, less any payments made by the administrator to the creditors.
At the credit bureau, the individual debts included in the proposal will continue to show during the length of your proposal, as well as for three years following its completion. Three years after the proposal is finished, any debts discharged in the process must be completely removed from the file by the credit bureau. Keep in mind that it is up the consumer debtor (you) to verify that this has been done correctly. This is why it is important to keep a copy of the certificate of compliance, proving that the proposal was successfully completed.
Is A Co-Signer Protected By My Consumer Proposal?
It is very important to remember that any co-signers or co-borrowers will not be protected by a consumer proposal filed by another person. The creditors will receive dividend payments, however, the accounts will remain completely active and continue to charge interest to the non-proposal account holder.
If you’re considering filing a consumer proposal and would like more information about the process, contact a local Trustee in Bankruptcy to book a free consultation to review whether it’s right for you.