Many people reach out to a Licensed Insolvency Trustee (“LIT”), thinking that we pay their debt in bankruptcy or that we provide a consolidation loan to pay off their debt in a consumer proposal. Both of these assumptions are false.
A consumer proposal is not a loan and, accordingly, has no interest on the payment terms. A proposal is a formal, legally binding agreement to compromise the amount that you owe your creditors. A proposal can offer payment in full, but typically offers a percentage of the total amount of your unsecured debt. The proposal must offer to your creditors a higher return than they would receive in a bankruptcy and must be completed in 5 years. The terms of the proposal can be creative and flexible to provide you with the best chance of successful completion.
A consumer proposal can only be filed through a LIT who works with you to develop the terms of your proposal. The LIT will review your financial situation in detail and advise you on a reasonable amount that you can offer to your creditors based on their experience.
A consumer proposal is filed under the Bankruptcy and Insolvency Act and will be reported on your credit report as an R7 for 3 years from completion of your proposal. The benefit of a proposal is that you can retain your assets, keep your tax refunds and GST and know that you will be debt free in 5 years.
Please feel free to reach out to us for a free consultation or refer to the Office of the Superintendent of Bankruptcy website at https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/you-owe-money/you-owe-money-consumer-proposals for more information.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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