A consumer proposal is a legal solution offered by the Bankruptcy and Insolvency Act (BIA) that allows a consumer to reach an arrangement with their creditors to modify the terms of debt repayment. This option is designed for individuals who are not able to repay their entire debts but might be able to repay a portion of them over an extended period.
Here are some key points regarding the consumer proposal:
- Nature of the proposal: The debtor proposes a plan to repay a portion of their debts over a period that can last up to 5 years. The exact amount and duration depend on the debtor’s financial situation and negotiations with the creditors.
- Benefits: A consumer proposal typically halts legal actions, stops the accumulation of interest and protects the debtor’s assets from being seized by creditors.
- Process: The proposal must be filed through a licensed bankruptcy trustee. Once the proposal is filed, all actions by creditors are halted. The creditors then vote to accept or reject the proposal. If the majority of the creditors (by debt value) accept the proposal, all creditors are bound by it.
- Consequences of an accepted proposal: If the proposal is accepted and the debtor adheres to the repayment terms, all debts included in the proposal will be considered settled at the end of the proposal period.
- Consequences of a rejected or non-compliant proposal: If the proposal is rejected by the creditors or if the debtor does not adhere to the repayment terms, they might be forced to declare bankruptcy or seek other solutions to settle their debts.
- Impact on credit: A consumer proposal will have an effect on the debtor’s credit score, but generally less than for a bankruptcy.
The decision to file a consumer proposal should be made after thorough consultation with a Licensed insolvency trustee, to ensure it’s the best option given the specific financial situation of the individual.