The most common questions we are most frequently asked by individuals regarding a consumer proposal are summarized below. If you are unable to find an answer to your specific question from the following selection, please contact our office toll free at 1-877-944-1177 to speak with a FABER Trustee / Proposal Administrator.
A consumer proposal is a legal process administered under the Bankruptcy and Insolvency Act that is a matter of public record but is an alternative to personal bankruptcy. A consumer proposal is arranged by a Trustee in Bankruptcy acting in the capacity as Proposal Administrator and it can effectively consolidate your unsecured debts. The proposal is between the creditor(s) and the debtor(s) and will usually be for an amount which is less than the original debt. In order for the consumer proposal to be legally binding, the unsecured creditors who hold the majority of your debt must agree to the proposal, actively or by default.
A consumer proposal allows new terms for your unsecured debts owed, usually for a small amount over a longer period of time. Filing for a consumer proposal provides you with immediate protection against any further collection or legal action by your creditors including Canada Revenue Agency (“CRA”) for income tax and GST debt.
Your creditors are prohibited from contacting you and must communicate directly with your FABER Trustee. Your FABER Trustee will immediately intervene to terminate wage garnishments, bank account seizures and unencumbered asset seizures.
In order to a file a consumer proposal, you must first seek out a Trustee in Bankruptcy who will act as a Proposal Administrator. Your FABER Trustee will be responsible for conducting the initial assessment to help determine if you qualify for a consumer proposal. He or she can aid you in your decision as to whether this avenue is the proper debt relief solution for you. Your FABER Trustee will act as a Proposal Administrator to help you prepare and draft your proposal based on some assets and liabilities. He or she can help you determine how much to propose, in order to ensure that the proposal will be accepted by the creditors.
Your FABER Proposal Administrator will file the proposal with the Office of the Superintendent of Bankruptcy. He or she will communicate the terms of your proposal to creditors, and he or she will ensure that any wage garnishments and collection actions against you will stop as soon as the filing is complete. If your proposal is approved or approval is obtained by default within the 45-day limit, your FABER Proposal Administrator will complete all the relevant administrative duties, including collecting payments, dealing with your creditors, arranging for your credit counselling sessions and making payments to your creditors in settlement of your debts. Finally, after the successful completion of your proposal, your FABER Proposal Administrator will issue a Certificate of Full Performance.
A debtor who is employed and can afford to continue to make payments each month is a viable candidate for a consumer proposal. Further, your debts must be over $1,000 and no greater than $250,000 (not including your home mortgage).
In order to qualify for a consumer proposal, you must be a debtor whose total debts are over $1,000. However, the debt must not exceed the limit of $250,000, excluding the mortgage on your principal residence.
You may also qualify for a joint consumer proposal, which can be filed by two or more individuals who have a financial relationship together. This is usually the option take by married debtors. In that case, the consumer proposal debt limit is doubled, making it $500,000.
In considering whether to a make a consumer proposal, you need to be realistic about whether you can continue to make payments, even small amounts, on a monthly schedule. If you have a history of relatively stable earnings, and this is expected to continue, then it is likely that a calculation can be made to determine what type of payment structure would be reasonable in your personal circumstances. However, if your income is low, periodic or you have no income, then it is unlikely that a proposal based on monthly payments would be feasible.
If you are having debt problems and you don’t want to file for bankruptcy or lose any assets, a consumer proposal might be a better option for you. If you are employed and can make regular payments, but you just can’t afford full debt repayment to your creditors, a consumer proposal may be the best option. Consider that a consumer proposal will usually not allow you to pick and choose which debts can be included. Further, the proposal will not absolve you from child or spousal support obligations.
Once you have completed the consumer proposal, your FABER Proposal Administrator will file the proposal with the Office of the Superintendent of Bankruptcy. As soon as this proposal is filed, you may stop making payments directly to any unsecured creditors. After filing the consumer proposal, your FABER Proposal Administrator will submit the proposal to your creditors for their approval. Any garnishment of your wages must then immediately stop and so too will any legal action against you by your unsecured creditors.
In most cases, the consumer proposal will be accompanied by a detailed report on your personal situation and financial issues. Following this, creditors will have 45 days to either accept or reject the proposal.
After making the proposal, it is important to note that there is no guarantee that your creditors will accept the consumer proposal. Each creditor is unique and may have their own policies and guideline for what they will accept. You should make a proposal that will be fair to both you and to your creditors. While you are likely not able to repay the full amount, it is recommended that you make a proposal which reflects how much you can reasonably afford in your circumstances. Contact a licensed Proposal Administrator to discuss drafting the proposal. They will help you calculate all of your assets and liabilities and help to propose an amount which both your creditors and you can accept.
In deciding an amount to propose, you must consider that your creditors do not have to accept your proposal. For example, if you have significant surplus income, which is over the Superintendent of Bankruptcy’s monthly expense guidelines, creditors be unlikely to accept your proposal and they will be seeking a higher proposed amount from you.
The amount to be paid monthly to your creditors will be outlined in the consumer proposal. It may involve a lump sum payment or it may involve monthly payments for a period of no more than 5 years. In some cases, the proposal may involve a combination of both types of payments. Either way, the payments must not be set for longer than the 5-year time limit for the proposal.
The maximum time for a consumer proposal is 5 years. However, you can arrange a shorter proposal time with your creditors if it suits you.
There are several important steps in the consumer proposal process. Firstly, you must contact a Trustee in Bankruptcy who will act in the capacity of Proposal Administrator for a review and decide whether the proposal process makes sense for your situation. If you decide to move forward with a consumer proposal, you must devise a payment plan and schedule. Then, you file the proposal and wait to hear whether your creditors vote to accept, amend or reject your proposal. If the proposal is accepted, you can begin making payments and attending the two required credit counselling sessions. Finally, once all payments have been made to satisfy the proposal, you can obtain your Certificate of Full Performance.
There is a filing fee payable to the Superintendent of Bankruptcy. Further, there are fees owed to your FABER Proposal Administrator. These fees are prescribed by the Bankruptcy and Insolvency Rules. Consult a FABER Trustee in Bankruptcy today to find out what kind of fees would apply to your consumer proposal.
Yes, you must make monthly payments to your FABER Proposal Administrator. Fees to FABER Inc. are deducted before payment is made to the creditors in accordance with The Bankruptcy and Insolvency Act. This legislation regulates the amount of fees which can be paid to a Proposal Administrator for administration of a consumer proposal. Consumer Proposal Administrators are licensed Trustees in Bankruptcy registered with the federal government under the Bankruptcy and Insolvency Act.
Once you’ve filed a consumer proposal, you must provide the Trustee with a complete list of all of your assets and liabilities. This list must itemize all of your property and all of your debts. You are obliged to attend two counselling sessions as part of your duties. Finally, you must advise the Trustee in writing of any address change and you must cooperate with the Trustee in administering the proposal. In other words, you must work with your FABER Proposal Administrator and be open and transparent about your finances.
A consumer proposal has strict conditions that the debtor must comply with. If three payments are missed, the proposal can automatically default and the debtor will not be eligible to file it again. A default can also lead to further legal action, and will allow creditors to continue to pursue the full amount that they are owed.
Once you have made the last payment to satisfy your debt, your consumer proposal will be completed. Your FABER Proposal Administrator will send you a Certificate of Full Performance, which is a document to evidence that you have satisfied all of the terms of your consumer proposal. Further, you will also be provided with a Statement of Receipts and Disbursements, a Notice of Taxation of the Administrator’s Accounts and the Discharge of the Administrator. All of these documents will be sent to your creditors and to the Office of the Superintendent of Bankruptcy. Once the reporting is complete, the credit reporting agencies will be informed and you will be able to start rebuilding your credit.
A consumer proposal is a matter of public record and will be attached to your credit rating during the proposal process (up to a maximum of 5 years), and then for additional 3 years afterwards. If you file your consumer proposal before your creditors take legal action to garnish your wages, then your employer will not need to know about your consumer proposal. Your friends and family will likely not know of the consumer proposal unless you inform them.
If you file a consumer proposal, you are allowed to keep a bank account. Banks generally do not close a bank account due to a consumer proposal. However, it may be prudent to open a new bank account with a completely new banking institution before filing your proposal in order to mitigate some of the risks associated with keeping the old account. By taking this step, which is your right under the Bank Act, you may prevent creditors from trying to withdraw money from your account. Further, if your old account is in overdraft and you want to continue to use the account throughout the consumer proposal, you will have to pay back the overdraft. However, if you open a new account, then you can include the overdraft from your old account in your consumer proposal.
You should consider depositing all cash to the new account and arranging for any pre-authorized payments such as utilities bills to go through to the new account.
A wage garnishment or “garnishee” is when your creditor gets a court order for your employer to make payments out of your pay, directly to the creditor. In order to stop the garnishment of your wages, you must either pay off the debt or file a consumer proposal to your creditors. Note that only a licensed Bankruptcy Trustee, a Proposal Administrator, is allowed to handle a consumer proposal for you.
If you have already had your wages garnished, your employer will have already been contacted about your debt. In order to stop the garnishee, you will have file a consumer proposal. In this case, your employer would need to be informed to stop garnishing your wages and sending payments to your creditor. One way to avoid having your employer being informed of the consumer proposal is to file the consumer proposal before a creditor garnishes your wages.
If your spouse did not hold any debt with you jointly, then he or she will not be affected. The consumer proposal will only appear on your credit report, and not your spouse’s.
If you have a debt that is jointly held with your spouse, however, such as a line of credit that is in both of your names, your spouse may be affected by your consumer proposal. If you filed a proposal and your spouse did not, they can continue to be liable for the debt in a joint line of credit and could be pursued by the bank. Therefore, it may be prudent to file a joint consumer proposal when you and your spouse have jointly held debts that are otherwise unmanageable.
Consumer proposals will not extinguish the liability of anyone who has guaranteed or co-signed any loans with the debtor. These guarantors will continue to be responsible for the debts. However, any payments received by the creditor from the consumer proposal in payment of the debt will be subtracted from the debt.
No, your job should not be affected by a consumer proposal. You are legally protected by Section 66.36 of the Bankruptcy and Insolvency Act, which states that, “No employer shall dismiss, suspend, lay off or otherwise discipline a consumer debtor on the sole ground that a consumer proposal has been filed in respect of a consumer debtor.”
As soon as your consumer proposal is filed, unsecured creditors must stop contacting you directly and seeking payment from you. If they wish to contact you, they must deal directly with your FABER Proposal Administrator. On the other hand, secured creditors are not affected by a consumer proposal so you will need to continue to deal with them as regularly, and you are obliged to make regular payments.
Your creditors will have 45 days to respond to the proposal or it will be accepted by default. Weekends and statutory holidays are not excluded. For example, if you filed a consumer proposal on June 1st, then your creditors have until July 15th to vote for or against the plan. If they vote on whether or not to accept your proposal, a majority acceptance by the creditors with 25% of more of your proven debts is required for the proposal to go through. Otherwise your FABER Proposal Administrator will be required to schedule a Meeting of Creditors to be held within 21 days and all of your creditors will have until the meeting to vote (or change their vote) as they see fit.
A consumer proposal is structured as an offer that, once accepted by your creditors, will be binding. Once you have made all the payments and settled the debt owed to your creditors within the 5-year period, they will no longer be able to pursue you for any further payment. Once the total amount is agreed upon in the proposal, it is frozen on the date of filing the proposal. No interest accumulates on that amount, so that when the sum is paid, the debtor is discharged completely.
If the debt that you owe is to CRA, you may be able to file a consumer proposal to them for an amount lower that your tax debt. A consumer proposal will be your only option as CRA will not enter into debt settlement negotiations. They are quite strict in that they will consider a consumer proposal only once all assets are fully disclosed.
However, whether CRA accepts it will depend on whether your income tax returns have been filed and are up to date, prior to the filing of your proposal. Further, any acceptance on CRA’s part may depend on an agreement that any taxes owing during the proposal period must be paid as they become due. Further, in the event that taxes for prior years are re-assessed and a refund is issued, CRA may require that the refund must be applied to your outstanding tax debt.
Both child support and spousal support owed under a court order or under a separation agreement are not discharged by a consumer proposal.
The relevant sections of the Bankruptcy and Insolvency Act are 121 , 136 and 178, which provide that child support and spousal support debts owed by the bankrupt do not get discharged (unlike all other debts). Moreover, enforcement proceedings for child support and spousal support are able to continue during a consumer proposal.
In most cases, student loans cannot be included in a consumer proposal, such as if less than 7 years have passed from the end of your studies. During the time you are making payment on the consumer proposal, you will not be required to make student loan payments. However, interest will continue to be added to your student loan amount during this period.
If you owe no balance on credit cards, you may be able to keep them. However, in many cases, once the credit card company becomes aware of your consumer proposal, they may suspend its use.
Depending on your circumstances, it may be possible to obtain a secured credit card during your proposal. This can be helpful in that it would allow you to rebuild credit while you are completing your proposal.
There are certain type of debt which will survive your consumer proposal. They are found in Section 178 of the Bankruptcy and Insolvency Act and include: court fines, penalties and restitution orders; alimony, child support and maintenance; any award by the Court for intentional bodily harm, sexual assault or wrongful death; any debt or liability arising out of fraud, embezzlement, misappropriation or misconduct while acting in a fiduciary capacity; any debt or liability for obtaining property under false pretences or fraudulent misrepresentation; liability for any dividend a creditor would have been entitled to receive when you fail to disclose the creditor to your trustee; certain student loans.
When filing for a consumer proposal, like in the case of filing for bankruptcy, some property or assets are exempt from the proposal and are protected by law because they are considered essential and therefore cannot be seized. In Alberta, you are able to retain:
The value of any assets exceeding specified amounts must be usually be turned over to your FABER Proposal Administrator, which in turn will be sold with the proceeds distributed among the creditors. Similarly, non-exempt assets, whether in your possession or in the possession of a third party, will be transferred to your FABER Proposal Administrator for the benefit of the creditors. However, non-exempt assets, such as a motorcycle, travel trailer or boat, may be structured in the bankruptcy such that you can retain possession of the asset and repurchase it at fair market value from the Bankruptcy Trustee. If a non-exempt asset is subject to a lien or charge held by a secured creditor and there is no equity, then you main be entitled to retain possession of that asset during bankruptcy by maintaining your monthly loan payments to the secured creditor.
Secured assets are not affected by a consumer proposal. This includes mortgages and cars which come from payments to secured creditors. However, depending on the type of debt you have incurred, you may choose to surrender and return some of your secured assets, including your home or car. The resulting shortfall from the sale of these assets will be held as security by the secured creditor will be included as an unsecured debt in your proposal.
Once you default on three payments during the term of your consumer proposal, you put yourself at risk of having your consumer proposal annulled or put in default. This will essentially bring the proposal to an end, and all of the rights of your unsecured creditors to seek payment from you will be reinstated. In some cases, the proposal administrator may be able to waive the payment arrears and extend the length of consumer proposal. Regardless, this extension cannot go beyond the past original 5-year limit for completion from the filing date.
Another option for a debtor who has gone into default may be to file an amended consumer proposal. However, this proposal will also require a vote by your creditors for approval.
After filing a consumer proposal, you will continue to file your income tax returns, and your income tax refunds will continue to be remitted directly to you by the Canada Revenue Agency throughout the length of the proposal. This is due to the fact that you do not usually give up your assets in a consumer proposal.
As soon as your consumer proposal is filed, your credit rating will be affected. You will receive an R7 credit rating, which means that they are receiving payments through a third party, your FABER Proposal Administrator. This R7 rating will remain on your credit until such time as the proposal is completed. Once you have completed the entirety of your required proposal payments, there will continue to be a note on your credit rating for approximately three years. In most cases, the consumer proposal will affect your credit record for up to eight years. This runs from the date that you first filed the proposal to creditors, to the end of three year “note” period on your rating.
Unlike the case when filing for bankruptcy, there is no requirement for you to resign as a director of a corporation when you file a consumer proposal.
As a limited corporation, the business is a completely separate entity and your financial status will not affect your role as director. However, if you also own shares in the company, the shares would have to be valued as an asset of the proposal, for distribution to your creditors.
There is no requirement for you to disclose the status of your consumer proposal when you enter into a business transaction. Note, however, that a consumer proposal is a matter of public record and will be attached to your credit rating for up to 8 years.