when is a consumer proposal appropriate Archives - Ira SmithTrustee & Receiver Inc.

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Disadvantages of consumer proposal: What is a consumer proposal?

As regular readers of Brandon Blog know, I have written many blogs about consumer proposals. I normally focus on the advantages of a consumer proposal. As I have never written about the disadvantages of consumer proposal, I thought I would do so now. There are many more advantages than there are disadvantages; however, there are a couple of points you should know. Some people may see them as drawbacks or disappointments. It depends on your unique situation.

Consumer proposals can be called an individual’s insolvency debt settlement agreement in Canada. It is a proposal to your unsecured creditors to pay off a portion of your frustrating unsecured debts over a set period of time. If you successfully complete the consumer proposal by making all the needed payments, the total amount of your unsecured financial obligations are forgiven at the end of the settlement period. Consumer proposals are created to get the debt freedom to consumers who cannot afford to pay off their total debt. It is a legally binding contract between the debtor and the unsecured creditors to eliminate debt carried out under the Bankruptcy and also Insolvency Act (Canada).

So consumer proposals are the best alternative to bankruptcy. To find out about all the advantages of consumer proposals, I recommend my recent blog post, CONSUMER PROPOSAL FAQ: ANSWERS TO 10 TANTALIZING CONSUMER PROPOSAL QUESTIONS.

Disadvantages of consumer proposal: When is a consumer proposal appropriate?

Consumer proposals are appropriate for individuals that:

Have a secure income flow, such as from full-time employment.
Are insolvent.
Are serious about getting rid of all of their unsecured financial obligations by paying only a portion of the total owed.
Wish to stay clear of bankruptcy.

To discover if a consumer proposal is an appropriate selection for you, set up a no-cost conference with a licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy) (LIT or Trustee) to discuss your personal scenario. The LIT will examine your monetary situation and see if you have the economic capacity to efficiently complete a consumer proposal. The Trustee will certainly describe the pros and cons of the various options that might assist you to resolve your financial troubles.

If you choose to submit a consumer proposal, the LIT will work with you to develop a proposal that benefits both you as well as your unsecured creditors. If you file a customer proposal, you have to:

give the LIT a complete list of your assets and liabilities;
attend the first meeting of creditors, if one is requested by your creditors;
participate in 2 counselling sessions;
keep the LIT updated of any change of address; and
help the LIT in administering the proposal.

Disadvantages of consumer proposal: When is a meeting of creditors held?

The first disadvantage to talk about is when is a meeting of creditors held? The only time a meeting of creditors is called in consumer proposals is if creditors representing 25% or more of the proven claims filed request it. This would mean that at that point, you do not have a great relationship with creditors. They do not like the original consumer proposal you have submitted for their consideration.

A request for a meeting must be made by the creditors within 45 days of the filing of the proposal. The Office of the Superintendent of Bankruptcy Canada (OSB) can also direct the LIT to call a meeting of creditors at any time within that same period.

The meeting of creditors must be held within 21 days after being called. At the meeting, the creditors vote to either accept or refuse the proposal, or any amended proposal tabled at the meeting.

If no meeting of creditors is requested within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors regardless of any objections received.

Disadvantages of consumer proposal: How will a consumer proposal affect my credit rating?

The disadvantages of consumer proposal include the fact that it will have a negative impact on your credit rating. Generally, a person who declares bankruptcy is assigned the lowest possible credit score. Normally, with proposals, you are assigned a rating of R7. With bankruptcies, it is a worse rating of R9, the lowest possible. With proposals, The record of your consumer proposal will show up on your credit report. It will certainly be there for possibly 3 years after you have actually fully finished making all the payments. This is less than how long it will stay on your credit report because of bankruptcy.

Your ability to obtain and make use of credit after a consumer proposal relies on encouraging lenders of your personal financial maturity as well as the capability to repay the credit you are requesting. There are no guarantees and nobody is required to extend credit to you.

Once you have fulfilled the terms of your consumer proposal, you will receive a “certificate of full performance.” To make sure your credit record is updated, send a copy of that document to the major credit-reporting agencies, TransUnion Canada and Equifax Canada. Be sure to keep all of your proposal-related documents for reference by future lenders.

Disadvantages of consumer proposal: Why are consumer proposals rejected?

Adding to the disadvantages of consumer proposal is the possibility that the creditors will decline it. Consumer proposals are commonly the last option for creditors, other than for consumer bankruptcy. In most cases, creditors accept a well thought out debt settlement plan since they wish to recuperate some of the funds that would otherwise be lost forever. Consequently, LITs who prepare well-drafted and properly explained consumer proposals get them approved by creditors.

Nevertheless, creditors can reserve their right to reject them. When consumer proposals are rejected, it’s commonly a result of the belief of the creditor that the proposal is in reality, not a better realization than in a bankruptcy process. Conversely, creditors see that they may need to wait as much as 5 years to receive what they deem a paltry reward. They prefer to finish the pain now and get nothing in the individual’s bankruptcy than have to carry holding and administering the account for 5 years to get next to nothing, notwithstanding it is a better outcome than the borrower’s filing for bankruptcy.

Disadvantages of consumer proposal: What happens if you miss a consumer proposal payment?

As long as you are following the agreed terms of your proposal, your creditors cannot take any further action against you. If you fail to meet the agreed terms of your proposal and/or miss three months of payments, the proposal will be deemed annulled. If this happens, you are barred from filing another consumer proposal.

However, there is a temporary COVID-19 special accommodation now allowed for by the OSB. A Trustee can explain what the special rules are.

So, subject to certain temporary COVID-19 accommodation, one of the disadvantages of consumer proposal is that if you default by missing 3 months of payments, your proposal is deemed annulled. The only thing left would be a bankruptcy filing.

How long does it take to rebuild credit after a consumer proposal?

Another one of the disadvantages of consumer proposal is that you will need to rebuild your credit. Although it is difficult and takes time, it is not impossible. To begin rebuilding your credit after a consumer proposal, work with your Trustee to make sure that everything you do is reported to the credit bureaus. The more positive reports that you have on file with TransUnion and Equifax, the better your credit score will be.

I always advise clients that the first thing they should do is get a secured credit card. Not the kind you buy at the drug store. Rather, it is a credit card from one of the banks. You put up a sum of money that the bank will keep as a security deposit, They then issue you a credit card with a limit equal to the deposit you put up. Each month, when you pay the credit card off in full on time, the bank reports this to the credit bureaus. Every month they report favourably is another month that you are working on improving your credit score.

The next thing you can do is take out a small loan to invest the funds in an RRSP. Use your tax refund or the extra tax you did not have to pay, to pay down the loan. Make sure that you pay off the balance of the loan within 1 year. Make your monthly payments on time. Again, your proper use of this credit will be reported to the credit bureaus and will work in your favour.

It will take a few years, and initially you may pay a higher rate of interest than if you didn’t need to file a consumer proposal. After a few years of using credit properly, you will find that your credit is now rebuilt.

***Disadvantages of consumer proposal*: Are consumer proposals bad?**

In my view, the disadvantages of a consumer proposal are not enough to ever stop anyone from entering into the only government-approved debt settlement plan. To summarize, I see the disadvantages as:

The possibility that it may take a lot longer and be more expensive than you hoped for to reach a deal with your creditors if 25% or more of the dollar value of the proven claims vote against your initial offer.
Negative impact on your credit rating.
Rejection by your creditors and no agreement on an amended proposal forcing you into bankruptcy.
You miss 3 payments causing you to default on your consumer proposal. Again, if this happens, your only real option is to file for personal bankruptcy, which is what you tried to avoid.
It will take you time to rebuild your credit.
It only allows you to wipe away your unsecured debt. If you have secured debt that you cannot afford to continue paying, your LIT will counsel you on the best way to deal with that secured debt BEFORE you file.

Disadvantages of consumer proposal summary

I hope you enjoyed the disadvantages of consumer proposal Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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What is a consumer proposal?

I have written Brandon’s Blogs before on the topic of consumer proposals. Recently, I have heard some people refer to them as “consumers proposal”. Placing the “s” on the wrong word. So, I thought it would be good for me to write a refresher blog on the most asked questions when it comes to a consumer proposal. A consumer proposal Canada faq Brandon’s Blog.

In summary, a consumer proposal is a structured process under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This procedure allows insolvent individuals to make an official deal with the people and companies they owe money to. This government accepted debt negotiation plan allows you to pay back only a portion of what you owe. You can take as long as 5 years of regular month-to-month repayments to do so.

When is a consumer proposal appropriate?

To be able to take advantage of this government-sanctioned debt settlement plan, you need to be insolvent and owe $250,000 or less to all your creditors. This dollar limit is apart from any financial debts secured by registration against your personal residence.

It is appropriate for anyone who:

has full-time employment;
can make their household budget allow them to make the required monthly payment you promised to make towards your debts; and
wants to avoid bankruptcy

What happens when you file a consumer proposal?

Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) administers the consumers’ proposal.

The LIT will submit the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you stop paying your unsecured creditors as of the date of your filing. You also will have stopped paying any secured creditors where you decided that you couldn’t afford to keep the secured asset(s) that you already returned.

On top of that, if your creditors are suing you, then your filing stops those legal actions If certain creditors already have a judgment against you and are garnisheeing your assets or your income, those actions are also stopped. This is called a stay of proceedings.

The LIT will send the proposal to your creditors. The proposal will include a listing of your assets and liabilities. It will also tell the creditors the reasons for your money difficulties.

Creditors then have 45 days to either accept or decline the proposal. They can do this either before or at the meeting of creditors if one is held.

When is a meeting of creditors held?

In order for consumers proposal to be approved, a simple majority of your creditors by dollar value that has actually filed a proof of claim need to authorize it. If creditors that have actually filed a proof of claim pick not to vote, that is considered a vote in favour.

You may not require to have a meeting of creditors. Unless creditors holding 25% in the dollar amount of the claims submitted ask for one, or the OSB requests it, there is no requirement to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors.

There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumers proposal.

If your proposal is accepted, the OSB, or any other interested party, has 15 days to ask the LIT to put it on the Court list to have the proposal examined by the Court. If no such demand is made, the proposal will be considered to have been approved by the Court.

If your consumer proposal is accepted

An accepted proposal is a contract between you and your creditors. You have promised to make monthly payments to the LIT for a period of up to 60 months. You carry out your end of the deal by making all the required payments.

You also need to attend two mandatory credit counselling courses run by the LIT. If you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

If your consumer proposal is not accepted

If your consumer proposal is not accepted, you can:

make changes to it and resubmit;
consider various other choices for addressing your financial problems; or
file for personal bankruptcy

As mentioned above, if you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.

How will a consumer proposal affect my credit rating?

Normally, a person who submits a consumer proposal is given the lowest credit rating.

Information that affects your credit report is typically removed from after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you complete all your payments and receive your certificate of full performance.

You will start rebuilding your credit. Through making a conscientious effort to show you can now handle credit, your credit score will start rising.

Is a consumer proposal worth it?

I think so. You had financial problems and maybe your assets and employment income were being garnisheed. You needed a solution. You chose the only government-sanctioned debt settlement plan in Canada. You successfully completed it. You shed a lot of debt. You also avoided bankruptcy.

I would say, that for sure, makes it worth it.

Is a consumer proposal bad?

A consumer proposal in itself is not bad. It has saved thousands of Canadians from their financial problems. It has made sure that the bankruptcy numbers in Canada are not as high as otherwise might have been.

The bad part was the financial trouble the person got into. Thankfully, in a country like Canada with a mature economy, there is a legal means to help the honest but unfortunate person shed their debt without going into bankruptcy.

What happens after a consumer proposal?

After you have successfully completed a consumer proposal, you have hopefully learned proper budgeting skills through credit counselling sessions. You are also now better equipped to make sure that you use credit more wisely. You also now know better that you cannot spend more than you earn, on an after-tax basis.

You can now start rebuilding your credit. Ways of doing that are:

Obtain a secured credit card. This is one where you put up a certain amount of money and you get a credit limit in line with your deposit. Every month that you pay your credit card balance in full, that is reported to the credit reporting agencies. When you show responsible use of the credit card, your credit score improves. If you do not handle that credit well, that is also reported. Hopefully, that will not be the case.
Take out a small RRSP loan your first year after getting your certificate of full performance. Pay that loan off within the next 12 month period. Making your loan payments on time is reported and helps increase your credit score.

Be careful with credit. You don’t want to fall back into the trap of taking on too much debt and having financial problems again.

Consumers proposal summary

Are you in financial distress? Do you not have enough funds to pay your bills as they come due?

As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.

Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.

We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.