You want to repay your debts, but the amount is so high that almost all your money goes toward paying interest on those debts. Is your situation so serious that you're trying to decide whether to continue paying or to declare personal bankruptcy?
There's another solution that can let you repay part of your debts without interest: a consumer proposal. Here is what it's all about.
A consumer proposal is an offer you make to your creditors to settle your debts. Creditors are the people you owe money to.
This kind of offer lets you do several things, including the following:
- repay your debts over a longer or shorter period of time, depending on your situation
- pay a lower amount each month
- repay only part of your debts, for example 70% of them, interest-free
If the offer is accepted, it becomes the repayment agreement with your creditors. The agreement must be carried out over no more than five years.
If the offer is refused, it's back to the drawing board. You'll have to repay your debts on the conditions agreed to with each creditor before the proposal or choose another solution to your debt problems.
Requirements for Making a Consumer Proposal
To make a consumer proposal, the total of your debts cannot be more than $250,000. The amount of a mortgage loan on your main residence is not included in this amount.
You must also be either bankrupt or insolvent. Being insolvent means that you meet all these conditions:
- not yet bankrupt
- have $1,000 or more of debts
- reside or own property in Canada
- be in one of the following situations:
- You cannot pay your debts as they become due, for any reason.
- You have stopped paying your debts or bills (electricity, telecommunications, credit cards, etc.).
- The value of all your property (your "assets") is less than the value of all your debts (your "liabilities").
If you're in this situation, you can make a consumer proposal by setting up an appointment with a trustee in bankruptcy (a "trustee").
The Trustee's Role
A trustee will examine your financial situation and help you draw up a list of your debts. The trustee then prepares a reasonable proposal for your creditors and helps you write it.
The trustee is also responsible for bringing the relevant creditors (if necessary), sending them a copy of the proposal and paying them once the consumer proposal has been accepted.
The cost of the trustee's services are included in the agreement you enter into with your creditors. You will therefore pay for these services as you pay off your other debts.
Impact of a Consumer Proposal
There are several advantages to consumer proposals.
On top of letting you repay only part of your debts, and pay a lower amount each month, they also put an end to
- the accumulation of interest on debts,
- collection efforts by creditors who insist on being paid,
- calls and letters from collection agencies, and
- any legal action relating to an unpaid debt that can be included in a proposal.
It also prevents creditors from seizing your property, wages or other income. It therefore lets you protect and keep your property.
However, a note will be added to your credit report indicating that you have used a consumer proposal to settle your debts. It will stay there until your debts are paid off and for another three years after the end of the proposal.
Important! If you fail to make three payments (in a row or not in a row), the consumer proposal can be cancelled. This gives creditors the right to demand that they be repaid on their terms.
Debts That Can Be Included in a Consumer Proposal
A consumer proposal can cover most debts, including the following:
- unpaid credit card amounts
- lines of credit or personal loans
- taxes owed
- debts owed to collection agencies
- student loans, on certain conditions
However, some debts cannot be included in a consumer proposal. This means that even if the creditors accept the offer you made them, they could decide to claim these debts at the end of the proposal. Here are the debts that cannot be included:
- support payments for a spouse or children
- debts resulting from a fine, penalty, restitution order or other similar order imposed by a court
- debts resulting from a trial for sexual assault or assault causing injuries or death
- debts arising out of fraud, fraudulent statements or illegal acts
- money a creditor could not receive because you didn't mention the debt to the trustee (when you drew up a list of your debts together)
- student loans, if you made the proposal within seven years of when you stopped being a student. In special cases, a judge can reduce this period to five years if he is satisfied that you made an effort to pay and that you will be unable to pay the debt.
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.