Consumer Proposal Ontario
A consumer proposal is a deal you make with your creditors only through a Trustee. You offer to pay a portion of your debts over an extended period in a single monthly payment based on what you can afford. When it is finished, all your obligations for those debts are legally released.
You may read about or you may have heard about a different type of proposal that seems different from the one we’re expanding on here. That is called a Division 1 Proposal. It is another proposal available to debtors under the Bankruptcy and Insolvency Act, but with much different rules.
A Div. 1 proposal applies to debtors who have $250,000 or more in unsecured debt (of which tax debt is one type, in addition to credit cards, lines of credit, etc.). In this proposal, there are more stringent rules required for its approval than in a Consumer (Div. 2) Proposal: you need 75% by dollars owed and 2/3rds of creditors for it to go ahead, PLUS approval by the court. If the proposal is not approved, you are automatically (deemed) bankrupt. Business proposals are also automatically considered Div. 1 regardless of the debt level.
We’ve had thousands of clients ask this excellent question, and we always advise the same thing: if you stay with the same mortgage lender, you’ll be fine. If you change to a new lender, they will naturally do a credit check on you (since you are new to them) and then they will see you are engaged in a proposal. This may affect whether or not you are approved for a mortgage with that new lender, or it may mean a worse rate, or both. We’ve never had someone tell us they were turned down while staying with the existing lender.
- You only pay a percentage of all your debts
- 0% interest
- It is open, so you can pay it sooner if you choose without penalty
- You get to keep the things you own
- The credit rating on your record is better than in a bankruptcy
- No additional fees
- Fees are regulated by law
- It stops all lawsuits, wage garnishments, asset seizures and collection efforts
- You avoid a bankruptcy
If your debts are over $1,000, are more than you own, and if you can afford a reasonable monthly payment to pay a portion of your debts, you can file a proposal. You must have less than $250,000 in unsecured debts (credit cards, lines of credit, retail cards etc.) not including your mortgage or secured car loan, for example.
Your proposal is an individual action – it will not affect the credit rating of your spouse or your family.
Your first step is to call us at Cooper & Co. 416-665-3383. We can arrange a free initial consultation (about an hour long) in which we will sit down with you, review your financial situation and lay out your options for you. You will leave knowing what you can do about your debts.
Only a Licensed Insolvency Trustee can administer a Consumer Proposal. Be careful – there are debt consultants who will tell you you can do a proposal and then refer you to a Trustee, anyway – for a large fee. Save yourself that fee and just call us directly to see if a proposal is right for you. 416-665-3383
The purpose of a consumer proposal is to make available to an “honest but unfortunate debtor” a reasonable alternative to filing bankruptcy. So, a structured legal settlement, with a payment plan (made through a licensed trustee’s trust account with all court reconciliations), for an arrangement approved by the unsecured creditors. And not only are a person’s assets and income not a factor (as they would be in a bankruptcy) but the credit impact is much lighter. In a proposal, you get an R7 rating (vs R9 in a bankruptcy) for 3 years once the proposal is paid in full. Since proposals are open terms, you are able to pay it off sooner if you are able. An R7 on a credit bureau indicates that some kind of formal settlement between the debtor and his/her creditors has been paid in full. This looks good to anyone viewing your credit report – you at least tried to make what payments you could, given your finances. Most people will be able to get future loans (car loans, mortgages etc.) even if a lender sees they’ve done a proposal. After the statutory 3 years, the proposal disappears from your credit history.
Since the Act is meant to be rehabilitative in nature rather than punitive, the idea is that you also rebuild your credit for the future. You do this by paying something back – over time – which is recorded on your credit bureau. The main way proposal clients do this is by getting a Secured credit card. These are tied to your credit bureau, so if you use them for small monthly purchases (eg., gas) and pay them in full each month, you slowly rebuild your credit – and you can do this while your proposal is underway, because your proposal only prevents you from having Unsecured credit, not Secured. By the time your R7 rating drops off, you should be an R1 provided there are no other negatives on your bureau (e.g., a delinquent car loan or mortgage payment).
You are free to have a secured credit card, but you will have to surrender all credit cards and cannot have new ones until the proposal is complete.
In a proposal you are allowed to keep your assets, including your house and any cars.
It depends on a few factors, but you can estimate it roughly by using our Debt Repayment Estimator.
You make your monthly payments to the Trustee. These go into the trust account and are distributed out to the creditors based on what you owe each of them proportionally. You get quarterly reports from us on how much you have paid to date, where the funds have gone and how much is left to pay.
All unsecured debts:
- Credit card balances
- Lines of credit
- Personal loans
- Retail cards (Future Shop, the Bay etc.)
- Bank account overdrafts
- Payday loans
- Utility balances owing
- Personal income tax owing
- Student loan balances (must be out of school more than 7 years)
- Shortfalls on secured loans
If you win the lottery during your proposal, you can keep the money. You can pay your proposal off if you choose, but you would still only need to pay off the amount agreed on.
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