Published on December 2nd, 2009 | by Canadian Credit Expert3
Consumer Proposal Definition
A consumer proposal is an alternative to bankruptcy available in Canada. It is essentially a negotiated settlement between an insolvent consumer and their creditors.
Just like debt consolidation, a consumer proposal allows a person to consolidate multiple loans into one monthly payment. For many consumers having one monthly payment is easier to manage.
A consumer proposal gives individuals a chance to pay back a larger portion of their debt then a personal bankruptcy would. Because consumer proposals provide creditors in Canada with a larger settlement on the debts owed to them, they usually prefer them to bankruptcy.
Similar to a Bankruptcy
Although consumer proposal is a bankruptcy alternative, there are still many similarities between the two. For instance a consumer proposal in Canada, just like a bankruptcy, requires a regular payment to the trustee. Consumer proposals are also governed by bankruptcy law in Canada.
Another similarity between personal bankruptcy and consumer proposal in Canada is the requirement of an administrator. Just like a bankruptcy a consumer proposal requires a trustee in bankruptcy to administer and manage it.
When you file for bankruptcy protection in Canada your creditors must stop contacting you for payments and cease all collection activities. This is also true for a consumer proposal.
Different from a Bankruptcy
A major difference between a consumer proposal and a bankruptcy is the length. Under the new bankruptcy laws in Canada a first time bankrupt without surplus income can file bankruptcy and receive a discharge from bankruptcy in 9 months. A consumer proposal however lasts much longer.
A consumer proposal can last up to 60 months or 5 years before being discharged.
A consumer proposal allows your creditors to take a much smaller loss than a bankruptcy would. This usually makes the proposal a more attractive option for your creditors.
Consumer Proposal Requirements
The following requirements for consumer proposal in Canada are based on Canada’s New Bankruptcy Laws. The bankruptcy amendments that took place in Canada on Sept 18th 2009 have a significant impact on consumer proposals in Canada.
- A consumer proposal in Canada is only available to debtors owing less than $250,000 (not including your primary mortgage)
- Canadians filing consumer proposal must complete at least 2 consumer proposal counselling sessions
- Consumer proposals cannot exceed 5 years in length
- Must be file filed through a trustee in bankruptcy or administer of consumer proposal
- If no creditors object to the consumer proposal within 45 days of application, it is considered approved
- The position of the creditor must be better than it would be in a bankruptcy
- If the courts or creditors do not accept the consumer proposal it is not automatically a bankrupty;
- If courts of creditors do not approve the consumer proposal, the debtor cannot file another proposal
Get Approved in Consumer Proposal
Bankrupt Car Loans has an excellent bankruptcy FAQ page dedicated to answering bankruptcy and consumer proposal questions, while helping Canadians with bad credit learn how to get a car loan in bankruptcy.