Consumer Proposal Questions
When would I file a Consumer Proposal?
How do I qualify?
How exactly does a Consumer Proposal work?
How do I know how much of a monthly payment to offer my creditors?
How do I calculate my surplus income?
What's the difference between a Consumer Proposal and a Division I Proposal?
Do any debts survive a Consumer Proposal?
How will a Consumer Proposal affect my spouse?
What happens to my creditors when I file a proposal?
How does a Consumer Proposal affect my credit rating?
What fees are involved with a Consumer Proposal?
How long will my Consumer Proposal last?
What happens to my house and car? Do I lose everything?
What happens if I can't pay for my Proposal?
Does a Consumer Proposal affect my job?
What happens to my income tax returns?
Do I get to keep my credit cards?
When would I file a Consumer Proposal?
A Consumer Proposal is for individuals whose debts have become unmanageable, but still have a steady income. With revisions to their payment plans they will be able to pay back their unsecured debts partially or in full within a maximum term of five years.
How do I qualify?
If you owe more than $1,000 and can't pay your debts when they are due, you may be able to file a Consumer Proposal. However, in order to file a Consumer Proposal your total debts, excluding the mortgage on your principal residence, must not exceed a specified dollar amount of $250,000 as outlined by the Bankruptcy and Insolvency Act.
If your unsecured debts exceed the specified dollar amount, you will not be eligible to file a Consumer Proposal but may be eligible to file a Division I Proposal under Section 50 of the Bankruptcy and Insolvency Act. Your MNP Trustee can provide you with more information and help you determine the right course of action.
How exactly does a Consumer Proposal work?
The Consumer Proposal allows you to make arrangements to pay all, or part, of your unsecured debts each month over a specified period of time. It also allows you to change the payment arrangement with your creditors by extending the timeframe, reducing the interest rate or reducing the amount to be paid over a period of time.
The offer of payment to your unsecured creditors is usually in the form of monthly payments, for a maximum term of five years. It may also include funds advanced from friends or family members, the sale of your assets, or may include other terms that are acceptable to your unsecured creditors.
The creditors will vote on whether to accept the proposal within 45 days following the filing of your proposal with the Office of the Superintendent of Bankruptcy. If the creditors vote to accept your proposal, then it defines the legal terms you and all of your unsecured creditors must abide by during the repayment period.
Once you fulfill the repayment terms of the proposal and attend two financial counselling sessions, you will receive a compliance certificate. This releases you from any further payment obligations to your unsecured creditors for the remaining balance of your unsecured debts.
In the event that creditors refuse to accept your proposal, you cannot make another proposal to your creditors. If this occurs, you will most likely have to file for bankruptcy to resolve your financial difficulties. However, it is uncommon for the unsecured creditors to refuse a viable proposal.
How do I know how much of a monthly payment to offer my creditors?
When an MNP Trustee drafts the proposal to your unsecured creditors for you, it must offer your unsecured creditors more money than they would receive if you were to file for bankruptcy. In completing a financial assessment, MNP will be able to determine the amount of money you can afford each month to make payments under your proposal to your unsecured creditors.
For a proposal to succeed, it is important that you have regular employment income and sufficient income leftover after paying monthly living expenses. This surplus income will be used to make monthly payments to your Trustee for the benefit of your unsecured creditors.
How do I calculate my surplus income?
To determine your surplus income, the federal government provides guidelines to Trustees that enables them to calculate your surplus income. That amount depends on the number of members in your family and your total family income. If you do not have surplus income under these guidelines, it is unlikely that you will be able to submit a proposal that your creditors will approve.
Determining the amount to offer your creditors in a proposal and determining your surplus income is not straightforward. That's why we recommend you contact an MNP office in your region to schedule a consultation to discuss your specific financial situation.
What's the difference between a Consumer Proposal and a Division I Proposal?
When your total debts (excluding the mortgage on your principal residence) exceeds $250,000 you will not be eligible to file a Consumer Proposal. However, you would be able to file a Division I Proposal.
Upon filing a Division I Proposal, your Trustee will call a First Meeting of Creditors (FMC) within 21 days. At that meeting, the Creditors will have a chance to ask the debtor questions and consider the terms of the Proposal. The Creditors will then vote on the Proposal. The creditors who are owed the most will exercise greater influence when deciding whether your proposal is accepted or rejected. For every $1 of unsecured debt you owe them, creditors receive one vote.
The Creditors can accept, reject or adjourn the meeting to further consider the proposal or request an amended proposal.
If the Division I Proposal is accepted, the Trustee will book a Court date and notify all stakeholders that the creditors are in agreement. The Trustee will then seek a Court Order to confirm the Proposal. In a Consumer Proposal, no Court attendance is required.
If the Proposal is rejected by the Creditors, then it is an automatic bankruptcy. A bankruptcy FMC will immediately follow. In a Consumer Proposal there is no automatic bankruptcy. The debtor usually files for bankruptcy thereafter.
Do any debts survive a Consumer Proposal?
The following debts are not released in a consumer proposal:
- Court fines, penalties and restitution orders
- Alimony, child support and maintenance
- Any award by the Court for intentional bodily harm, sexual assault or wrongful death
- Any debt or liability arising out of fraud, embezzlement, misappropriation or misconduct while acting in a fiduciary capacity
- Any debt or liability for obtaining property under false pretences or fraudulent misrepresentation
- Liability for any dividend a creditor would have been entitled to receive when you fail to disclose the creditor to your trustee
- Student loans in certain circumstances
How will a Consumer Proposal affect my spouse?
Your spouse's credit rating will not be affected and their wage won't be garnished. Only assets owned by the individual filing the proposal will be affected. If there is joint custody of assets or of the debt, it may be appropriate to file a joint proposal.
What happens to my creditors when I file a proposal?
When you file a proposal, unsecured creditors deal directly with your Trustee. Unsecured creditors must stop contacting you directly. If an unsecured creditor persists in contacting you, notify your MNP Trustee immediately.
How does a Consumer Proposal affect my credit rating?
Filing a proposal will result in a lower credit rating (R7); however, this rating will not be as low as declaring bankruptcy (R9). Furthermore, credit-reporting agencies typically keep a consumer proposal on your credit file for three years upon completion of your proposal, instead of six years, for a bankruptcy.
What fees are involved with a Consumer Proposal?
There is no additional cost to you over and above your proposal payments. Proposal fees are set out in the bankruptcy law and determined by way of a tariff calculation. This means that the fees are deducted from your dividend payments to the creditors.
How long will my Consumer Proposal last?
A consumer proposal cannot last more than five years, but the exact length depends on the type of proposal that you submit. Your credit rating reflects this for three years after your final payment.
What happens to my house and car? Do I lose everything?
Normally, secured creditors are not affected by a proposal. In most instances, you will continue to make payments to the secured creditors as per your usual arrangements.
However, if you elect in your proposal to surrender secured assets and stop making payments to secured creditors, they will recover these assets. In these circumstances, any resulting shortfall that may arise from the sale of the asset held as security by the secured creditor will be included as an unsecured debt in your proposal. This means that you will not be responsible for any further payments to the secured creditor.
What happens if I can't pay for my Proposal?
In making a proposal to your creditors, it is important that you make your monthly payments on time. If you default on three payments during the term of the proposal, the proposal is annulled. This means the proposal is brought to an end by default. In certain circumstances, an amended proposal may be filed prior to the default occurring. However, when a default occurs and an amended proposal is not filed and accepted by the unsecured creditors in time, the debts owing to the unsecured creditors are not discharged. In these cases, the unsecured creditors will begin to seek payment from you directly..If you have defaulted and the proposal is annulled you are prohibited from filing another Consumer Proposal, however, you can apply for bankruptcy at that time.
Does a Consumer Proposal affect my job?
No, filing a Consumer Proposal will have no affect on your job. Section 66.36 of the Bankruptcy and Insolvency Act states that "no employer shall dismiss, suspend, lay off or otherwise discipline a consumer debtor on the sole ground that a consumer proposal has been filed in respect of a consumer debtor."
What happens to my income tax returns?
As your assets do not vest with the Administrator, you will continue to be responsible to file your annual Income Tax returns. Any eligible tax refunds for years before the proposal will continue to be sent to you by Canada Revenue Agency, unless you have other tax debts owing to them. Any tax debt arising in the tax years prior to the proposal year will be included as a creditor in the proposal. For the year of the proposal and future years you will be responsible for any future income taxes due and entitled to receive any income tax refunds.
Do I get to keep my credit cards?
At the time of filing a proposal you will need to turn over all your credit cards to the Administrator (MNP), who will cancel them on your behalf. This is to ensure that you do not continue to accumulate debt. You may not be able to obtain a new credit card until after your proposal term is complete. However, you can continue to use or obtain a prepaid credit card during your proposal.
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