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What’s a Consumer Proposal and How Does It Work? Here’s the Answer

Jul 3, 2022

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If you're struggling with debt, you may be considering a consumer proposal. What is a consumer proposal? How does it work? In this article, you will get the answer to all of your questions about consumer proposals and help you decide if this is the right solution for you!

What Is A Consumer Proposal?

This process is an alternative to bankruptcy and is available to individuals, couples, and businesses who owe $250,000 or less. If you were ever asking yourself what are the benefits of a consumer proposal, there are tons! First off, these proposals stop interest from accruing on your debt, as well as freezing collection action against you.

This means that you no longer have to deal with those pesky phone calls and letters from creditors! consumer proposals also give you the opportunity to repay your debts over a period of time (usually five years or less).

How Does A Consumer Proposal Work?

There are certain processes and stages that are followed in order for a consumer proposal to be accepted.  First, an individual must consult with a Licensed Insolvency Trustee (LIT). The LIT will review the person's financial situation and provide them with information on all of their options, including the consumer proposal.

If the individual decides that a consumer proposal is the best option for them, the LIT will help them to prepare all of the necessary paperwork. Once the paperwork is complete, it will be submitted to the creditors.

The creditors will then have 45 days to review the proposal and decide whether or not to accept it. If the majority of creditors agree to the terms of the proposal, it will be accepted and binding on all of the creditors.

Below are the stages of a consumer proposal.

Assessment 

First off, it's important to know that not everyone is eligible for a consumer proposal. To find out if you qualify, you'll need to speak with a Licensed Insolvency Trustee (LIT). They will assess your current financial situation and advise you on whether or not a consumer proposal is the right solution for you.

If you decide to move forward with a consumer proposal, the next step is to develop your proposal. This will involve working with your LIT to come up with an offer that you can afford to repay, and that your creditors will accept. Once your proposal is complete, it will be presented to your creditors for approval.

Payment Plan 

There are different payment plans that can be chosen for consumer proposals. These are the following:

  • A lump-sum payment
  • Payment over time
  • Payment based on your income
  • A combination of these payment options

The payment plan will be based on your ability to pay and the creditors will vote on the proposal. If the creditors agree to the payment plan, then you will make payments to the trustee who will distribute the funds to the creditors. If you are unable to make a payment, the consumer proposal will be annulled and you will have to file for bankruptcy.

Filing And Voting 

This stage marks the official beginning of your consumer proposal. You, or your authorized representative, will file the necessary paperwork with the office of the Superintendent of Bankruptcy. This filing starts the 45-day period during which your creditors can vote on your proposal.

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You must also provide proof that you’ve completed mandatory counseling sessions before filing a consumer proposal. A notice will be sent to all of your creditors informing them of the filing, and they’ll have 45 days to vote on it.

In order for your proposal to be accepted, at least 50% of the dollar value of your unsecured creditors must accept it. If more than 50% of your creditors don’t accept it, then you may want to consider filing for bankruptcy instead.

Making The Payments 

Now it's time to finally make the payments on your consumer proposal. You'll work with your trustee to set up a budget and payment plan that's affordable for you, and then make those payments on time and in full. Depending on your situation, you may be making these payments for up to 60 months.

Credit Repair 

Once all is done and you have made your last payment, credit repair can begin. This is the stage where you start to rebuild your credit score and improve your creditworthiness.

Fixing your credit score can be a long and difficult process, but it is important to do if you want to improve your financial standing. There are a few things you can do to help improve your credit score, including paying all of your bills on time, maintaining a good credit history as well as using credit responsibly.

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Consumer proposals protect you from bankruptcy and losing your assets. It has a certain process which consists of filing it and then comes the assessment of your bills after which you need to figure out a payment plan. Then comes the official start by filing the proposal and having creditors vote on it. Once it's accepted, you need to make the payments after which it's time to repair your credit!

 


NCFA Jan 2018 resize - What's a Consumer Proposal and How Does It Work? Here's the AnswerThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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