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A consumer proposal is a formal, legal procedure under the Bankruptcy and Insolvency Act (BIA) which allows an individual to compromise his or her debts owing in order to resolve financial obligations. If accepted, the terms and conditions of the consumer proposal become a legal binding agreement. If you move forward with a consumer proposal in Ottawa, Kingston, or surrounding areas of Eastern Ontario, the process will be facilitated by a Licensed Insolvency Trustee (LIT), known as the “Administrator.” The Administrator will assist in developing the proposal which generally requires the debtor to pay a percentage of what may be owed, or extend the time to pay.
If your financial situation is such that budgeting, credit counselling, or refinancing cannot resolve your ongoing financial crisis, a consumer proposal is one of the options under the BIA to resolve your debts.
At your consultation, an LIT will review your debts and obligations, current monthly payments, and non-exempt assets, which may be used to pay your debts.
Once this review is completed, the LIT will discuss assets that would be realized and payments that may be required under the Superintendent’s Standards.
A consumer proposal in Ontario is limited to consumers:
who have unsecured debt up to $250,000, excluding any amount owing on your home mortgage;
who have an investment property, any amount owing on the mortgage is included in the $250,000.00 limit
who have previously filed and completed a consumer proposal, or if not completed, the debts owing at the time have been repaid.
The amount that will be offered in a proposal can be made up of periodic payments and the sale of assets. The amount you will pay each month will depend on the amount of debt included in the proposal, payment period requested, and your particular financial situation (taking into account your earned income, any rental income, any money expected to be received under a disability insurance plan, and any other money owed to you).
An individual is not able to choose what debts are included in a consumer proposal. It must include all unsecured debts over $250.00. Some examples of debts that are normally included in a consumer proposal filed for residents of Ottawa are:
Credit card debt & credit lines
Income tax owing
Business debts if self-employed
The same types of debt that survive a bankruptcy, also survives in a consumer proposal. We are pleased to provide a list of non-dischargeable debts which are excluded under the BIA.
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The payment terms are negotiable and tailored to an individual’s circumstances, while payments in a bankruptcy are set out in the directive known as the Superintendent’s Standards.
In some situations, you may wish to save an asset such as a home, RESP, life insurance policy with cash surrender value, etc., but with bankruptcy you may not be able to pay the amount due to the trustee and the asset will be required to be sold or realized on. Payments can be incorporated in a consumer proposal to retain the asset.
Monthly payments are agreed upon in a consumer proposal that can be up to five years in duration, while in a bankruptcy the payment amounts can increase or decrease, depending on each month’s income.
The credit bureau reporting by your unsecured creditors will be better once the proposal terms have been met. A consumer proposal can typically result in an R7 credit rating, while in bankruptcy, your credit rating will be R9 (the worst rating on a scale of R1 to R9);
You are entitled to have a secure credit card (which may be important to conduct business or required for other financial reasons).
Your credit rating can be improved sooner with a consumer proposal, which remains on your record for 3 years. In comparison, a second bankruptcy can remain of your credit rating for 14 years.
At D. & A. MacLeod, let our family help your family and provide professional advice regarding your specific financial situation. A consumer proposal may be the alternative to free you of your debt burden and start a new beginning™. We can meet you in any one of our convenient locations to answer questions you may have about consumer proposals in Kingston, Ottawa, Cornwall, Pembroke or elsewhere in Eastern Ontario.