A consumer proposal is a formal filing under the Bankruptcy and Insolvency Act that offers a compromise to your creditors. The terms of the proposal can be creative, but they must offer a higher distribution to your creditors than would be available in a bankruptcy and must be completed within 5 years. A proposal enables you to retain assets, keep any increase in income or subsequent inheritance or lottery win and is less derogatory on your credit rating.
Many people fear filing a consumer proposal in case their circumstances change for the negative. A loss of a job, separation of marriage or health issues can all result in lower income and higher expenses which will impact the ability to continue a consumer proposal. There are options available if your financial situation changes:
- You will be in default of your proposal terms and your administrator will notify your creditors of their revived right to pursue you for payment if you miss three payments in total. If you have not previously missed a payment under your proposal you may have a bit of breathing room in that you can miss two payments without affecting the proposal. Talk to your administrator about the status of your payments and potentially delaying a payment.
- Amend your proposal – if you find your financial circumstances have permanently changed resulting in a negative impact on your cash flow, contact your Licensed Insolvency Trustee to discuss the possibility of amending your proposal. They will re-evaluate your assets, surplus income payments and cash flow to determine if the payments offered in your proposal can be lowered to a more affordable amount.
- File an assignment in bankruptcy. A person who has filed a consumer proposal to their creditors is able to subsequently file an assignment in bankruptcy if they find they are unable to complete the terms of the proposal.
- If you find that you have surplus funds through monthly savings or an unexpected windfall, you can always pay your proposal off sooner which will decrease the length of time the proposal is on your credit rating.
Your Licensed Insolvency Trustee is there to assist you through the whole consumer proposal process. Reach out to them if you have any questions about your ability to complete your proposal terms.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
What happens to the money paid into the proposal if you switch to a bankruptcy
Hello Koral
The administrator of the proposal will either distribute the funds on hand or pay them over to the trustee in your bankruptcy.
Regards
Kathy
Would that mean that you would still have to pay an amount for the bankruptcy? or does that take into account what you will pay in the bankruptcy and owe less?
Hello Yuki
There would still be a minimum fee to file an assignment in bankruptcy and the trustee would have to analyze if you had realizable assets to settle or were obligated to make surplus income payments. The payments under your consumer proposal do not reduce these amounts.
Please feel free to contact me directly to discuss further.
Regards
Kathy