Consumer proposal: frequently asked questions

A few handy definitions

Reading about personal finances, you might come across terms that seem somewhat complicated. Here are a few commonly used terms, with an explanation to help you better understand.

Assets

Your money and property. For example:

• Cash assets and investments (bank accounts, savings, stocks and bonds, RRSPs, TFSAs, RESPs, etc.)
• Personal property (home, vehicle, furniture, jewelry, antiques, artwork, etc.)
• Certain contracts (such as life insurance policies)
• Some of these assets are safe from seizure by creditors.

Meeting of creditors

Your creditors may ask for this type of meeting. There will only be a meeting of creditors if there is a request by creditors who hold at least 25 percent of the total of your debts.

Credit rating

A grade given to you by a credit bureau (Equifaxor TransUnion). This rating is based on various criteria. But basically, the better you are at repayment, the better your rating will be.

Creditor

The person or institution you owe money to.

Secured and unsecured debt

A secured debt gives your creditor the right to seize the asset if you stop making payments. For example, if you can no longer make your car loan payments, the bank that gave you a loan can seize your car.

Unsecured debt refers to all debt that does not involve collateral. For example, credit cards, personal lines of credit, personal loans, etc. With this kind of debt, the creditor does not have the right to seize your assets even if you don’t make payments.

Surplus income

This is your household’s income that exceedsa certain limit set by the government.

Is a consumer proposal the same thing as a proposal to creditors?

Yes, it’s the same thing. The official name is consumer proposal.

Is filing a consumer proposal similar to declaring bankruptcy?

A consumer proposal is a solution that is commonly used as an alternative to bankruptcy. It offers several advantages. A consumer proposal allows you to:

• Pay less money each month
• Pay back just a portion of your debts
• Pay off your debt over a longer or shorter term

Here is how a proposal differs from bankruptcy:

• With a consumer proposal, you make the same monthly payment for the duration of your proposal. With a bankruptcy, the amount you pay monthly changes depending on your income. You need to be in touch with your trustee to let them know how much you are making for the duration of your bankruptcy, so that your monthly payments can be adjusted.
• With a consumer proposal, all your assets are protected. When you claim bankruptcy, you might have to give up some of your property.
• With a consumer proposal, you will be able to keep your tax refunds for the calendar year during which you file your proposal, except if you owe government debts. But if you file for bankruptcy, you will lose these refunds.

In all cases, your counsellor will assess your situation and help you choose what’s best for you. A consumer proposal is just one option. There are other alternatives to bankruptcy:

• Debt consolidation
• Voluntary deposit

Will I lose my home if I file a consumer proposal?

No, your house can’t be repossessed as long as you make your mortgage payments.

Will I lose my car?

No, your car can’t be repossessed as long as you are making payments.

Will I lose my RRSP and my pension?

No, your retirement savings are protected. Before dipping into your RRSP or other retirement funds, see if filing a consumer proposal is right for you.

Can my wages be garnished if I file a consumer proposal?

No, you are protected against lawsuits. No one can garnish your wages. The only exception is if you owe support-payment arrears to an ex-spouse.

Will my creditors keep contacting me?

No, your counsellor will take charge of your file straight away. They will then be the only point of contact with your creditors. No more harassing phone calls.

Will it stop seizures already underway?

Yes, filing a consumer proposal gives you legal protection against seizures. All seizures and legal proceedings will be stopped. There are only two exceptions:

• Secured creditors (for example the mortgage on your home)
• Wage garnishment for support-payment arrears

Do I still have to pay child support and alimony?

Yes, you will still have to pay child support and alimony.

If my ex-spouse files a consumer proposal, will I still receive my child support and alimony payments?

Yes, you will continue to receive any child support or alimony owed to you. The consumer proposal does not excuse missed payments.

What happens if I’ve co-signed a loan?

The person who co-signed with you will have to assume responsibility for paying the entirety of the debt.

Will my spouse be affected? Or my kids?

If your debts are in your name only, the consumer proposal will not affect your spouse. However, if you have any joint debts then your spouse will be responsible for them. As for your kids, no. Your family allowance cannot be seized.

Will I have to go to court?

No, the consumer proposal will stop any proceedings initiated against you by your creditors.

Can my creditors sue me?

No, the consumer proposal will protect you from seizure.

Is it anonymous? Who will know that I’ve done a consumer proposal?

Yes, it’s confidential. Only people who you share a debt with will know.

How will a counsellor be able to help me with my consumer proposal?

Your counsellor is there to help get you back on track.

• You won’t have to deal with creditors. No more stress!
• The counsellor assesses your situation and offers personalized advice.
• They will work with you throughout the process. You’ll have support every step of the way.

The result: You’ll quickly find yourself back to normal life and worry free.

How does a consumer proposal work?

Here are the 8 main steps:

• First meeting with your trustee
• Trustee’s evaluation and proposed solution
• Filing your paperwork
• Notice to creditors
• Acceptance or call to a meeting
• Negotiating an agreement
• Creditors’ acceptance
• Elimination of the debts

To learn more about consumer proposals, see all the details below.

Will a consumer proposal settle all my debts?

It will settle all unsecured debts:

• Credit cards
• Personal lines of credit
• Personal loans
• Payday loans
• Income tax
• Other

Secure debts (such as your mortgage or car loan) will not be settled. To keep your home or vehicle, you must continue to make payments. But you can also trade in a vehicle or property in your proposal to pay off another debt.

How much does a consumer proposal cost? Are there fees?

How much it costs will depend on your income and your ability to pay. The amount will be set with your counsellor, based on what you owe to creditors. Note that the administrative fees for the consumer proposal are established by the government and will be included in the payment for the proposal.

How long does a consumer proposal take?

Reimbursement to creditors happens over a period of up to 5 years. Once you’ve finished paying the total sum, a note stays on your credit file for 3 years.

How does a consumer proposal affect my credit rating?

Even though the consumer proposal will affect your credit rating, it is a necessary step in getting back on track for the coming years.

More specifically, filing a consumer proposal will result in an R9 credit rating. Once you have paid the debt in full, you’ll have an R7 rating. This indicates that you have concluded your settlement agreement with your creditors.

Will I be able to borrow money again after doing a consumer proposal?

Yes! The consumer proposal gives you the opportunity to rebuild your credit. If you adopt healthy financial habits, it will take around two or three years.

Do I need to give back my credit cards if I file a consumer proposal?

Yes, you will have to give your trustee all your credit cards so that they can be cancelled. But you will be able to sign up for new cards afterwards. At first, you will be entitled only to secured credit cards. Your financial institution will ask you to make a deposit to guarantee the credit limit. These new cards will help you start rebuilding your credit file.

What happens after the proposal is complete?

You’re free from debt and your creditors. You can now start rebuilding your credit.

Is a consumer proposal right for me?

You will be able to determine that with your counsellor, based on your financial situation. We’ve put numerous tools and resources at your disposal. While you’re waiting to meet with a counsellor, take a look. This will help you get a better understanding of how far in debt you are:

Create your budget

Get a first diagnosis of your finances.

Debt ratio

Is your debt too high for your income? Calculate your debt ratio to know for sure. Tip: If your debt ratio is over 40%, that means you will need to act fast.

How can I tell if I’m too far in debt?

There are several signs that are a sure indication. These can be financial, but also in the actions we take.

Being too far in debt is not temporary

Have you ever felt that you’re too far in debt, but kept telling yourself it’s only temporary? But then after a few months, you realized that things hadn’t gotten better? This means you’re overindebted, which is a situation that is never temporary. Find out more.

Will I be able to leave the country?

Yes, a consumer proposal does not prevent you from travelling overseas.