Proposals

What is a consumer proposal and why should anyone living in Guelph consider filing a consumer proposal? These are good questions, and in this article I will walk you through the process.

Remember, however, that everyone’s situation is different, so please feel free to please call my office in Guelph at 310-PLAN or e-mail me to give you advice on your specific situation.

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Ted Michalos, Trustee

What is a Consumer Proposal?

If you’ve never heard the term before coming to this website then I want you to think of a consumer proposal as a payment plan. It is a way to deal with your debts collectively (as a group) as opposed to one at a time.

If you are investigating your options to deal with your debts, this is the list I recommend you consider:

  • Consolidation loans
  • Credit counselling
  • Consumer proposals
  • Bankruptcy

With a consolidation loan, you apply to a bank for a loan (or a line of credit) large enough to repay all of you other debts. The idea is to combine all of your debt into a single loan at a much lower interest rate. This is an excellent way to reduce your monthly payments, but unfortunately, consolidation loans may be difficult to obtain and they simply aren’t for everyone.

Credit counselling is similar to a consolidation loan in that all of your debts are pooled together so that you only have one monthly payment to worry about. This procedure is usually prepared by not-for-profit agencies and is designed for individuals that can afford to repay 100% of their debts, but can’t get approval for a loan. Unfortunately, even when there debts are pooled together and the interest charges are greatly reduced, many people still can’t afford the required monthly payments to deal with their debts.

This is where a consumer proposal comes in.

When you file a consumer proposal you offer to repay a portion of your debts. That’s the key to this solution. It was created for people that can afford to repay part of their debt so that they don’t have to file for bankruptcy. How much of your debt you will have to repay will depend on your income, your family size, and the things that you own. As a minimum, you have to offer to repay more of your debt than would be repaid if you filed for bankruptcy. If you don’t offer more money than a bankruptcy then there is no reason for your creditors to accept your proposal.

That’s the catch to a consumer proposal. It is called a proposal because you are making an offer to your creditors and your creditors have to vote on whether or not to accept (or reject) your offer. It is a simple process. Every dollar you owe is entitled to a one vote and you need to have 50% +1 votes in favour of your offer.

The vast majority of proposals are accepted, but if your creditors vote no they generally offer alternate terms, think of it as a counter offer for you to consider. It is very unusual for a proposal to be rejected completely (fewer than 1 in 20 cases are simply turned down completely).

Hopefully you have a better understanding of what a consumer proposal is. Now we need to address why anyone might want to file one.

Remember, a consumer proposal is an alternative to both bankruptcy and a consolidation loan.

The reason you might consider a consumer proposal over a consolidation loan is purely financial. The payment in a consumer proposal will be significantly lower. The trade off will be that you will be severely restricting you access to any new credit while you are in the consumer proposal. If you have had a problem with over spending because you have access to too much credit a proposal might impose enough restrictions on your spending to help you change your spending habits.

The place where a proposal should be given very serious consideration is before you decide to file for bankruptcy. The concept behind bankruptcy is that you assign (hand over) the things that you own to a trustee, the trustee sells them and then divides the money up amongst your creditors. If you file a consumer proposal you agree to a payment plan. Unless you offer to sell or surrender something that you own as part of your payment plan, the things you own are not affected. Consumer proposals are often filed by people that own houses or have RRSPs or other things that they own that they don’t want to lose in a bankruptcy.

In addition, if you file bankruptcy, you will be required to make some sort of monthly payment to your trustee to cover the costs of filing and to repay some portion of your debt. This payment is based on your family size and your income. There is no upper limit to the amount you may be required to pay if you file bankruptcy. The higher your income the higher your payment and the longer your bankruptcy will run.

With a consumer proposal, you offer your creditors a fixed payment for a fixed period of time. If you income goes up your payments don’t change. In most cases the required monthly payment is lower than your bankruptcy payment (but you will be making that payment for a longer period of time).

If you are experiencing financial difficulty and are considering your options then you should take the time to discuss a consumer proposal. The procedure is not well known, but for many people it is the best solution to their financial problems. In fact, if more people knew about consumer proposals there would be a lot fewer bankruptcies filed in Guelph.

Give me a call in Guelph at 310-PLAN or e-mail me if you’d like to discuss your financial situation. I would be pleased to help you develop a plan to deal with your debts. Who knows? A consumer proposal might be just what you’re looking for!

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