A proposal is a formal offer to creditors to settle outstanding debts and is Canada’s number one alternative to bankruptcy.
A Consumer Proposal can be filed by an individual or couple who owe $250,000 or less, excluding a mortgage on a principal residence.
A division I proposal can be filed by an individual or a corporation and there are no upper limits on the amount owed.
Yes. If you have a house or vehicle secured by financing or mortgage you can keep them as long as the loan is current and remains up to date. If your property has any equity you should discuss this with your trustee at your free consultation.
Yes, a proposal will affect your credit rating. The credit bureau will report the proposal on your credit report as an R7 credit rating and this rating will remain on your credit report for 3 years from the completion of the proposal. If you are behind on your payments or have accounts in collections, the proposal rating on your credit report may actually be an improvement.
Creditors do have certain rights to collect upon their debts; however, you need to know you have rights too.
- Yes, credit can begin to be re-established once the proposal has been completed.
One of the questions on the application file is “Have you declared or filed for Bankruptcy in the last 3 years?”
- If the answer is “Yes”, the application will be denied due to the fact that the Student Loans office considers a Consumer Proposal in the same debt category. The debtor should be out of their bankruptcy or proposal for 3 years for the initial application to be accepted.
- Also, if there is no insolvency proceeding, a potential student would also be denied if they have serious credit abuse; which is defined as having missed payments on 3 debts over $1000, and over 90 days overdue.
However, in both of these scenarios, although the applicant will likely be denied, they can appeal the decision.
Unfortunately, there is not a magic number to offer to have a successful proposal. However, a proposal shouldn’t offer creditors less than would be received if there was a bankruptcy. A fair amount would be determined based on an individual’s ability to pay, not the amount owed.
| Bankruptcy | Proposals | Counselling | |
|---|---|---|---|
| Has the ability to stop the action by creditors | Yes | Yes | No |
| Can help arrange a repayment plan | Yes | Yes | Yes |
| Can stop interest/penalty charges | Yes | Yes | No |
| Licensed and Certified | Yes | Yes | No |
| Government Regulated | Yes | Yes | No |
| Can negotiate with creditors to reduce amounts owed | Yes | Yes | No |
| Can include Income tax debt. | Yes | Yes | No |
| The Law requires creditors to participate. | Yes | Yes | No |
| Can Stop Garnishments | Yes | Yes | No |
| Can Stop Judgments | Yes | Yes | No |
| Can Stop Legal Actions for the collection of debts. | Yes | Yes | No |
Credit counseling agencies cannot provide a guarantee the amount you owe will be reduced, interest will be stopped or creditors will stop calling sending letters or continuing legal actions. Arrangements with credit counseling agencies are not legally binding and will appear on your credit report for three years upon completion of the counseling program.
Credit counseling agencies also derive a large portion of their income by charging you fees on top of your total debt load and often receive rebates from the creditors that you owe. Credit Counselling agencies are not regulated by the government and in many provinces are registered as collection agencies.
Consumer Proposals or division I proposals will stop interest, stop harassment from creditors, and has the ability to reduce the total amount owed. A proposal is administered by a licensed Trustee who is required to follow government regulations.
Once a proposal is accepted by creditors it becomes legally binding and replaces any pre-existing contracts between the debtor and the creditors. A Trustee’s fees are subject to government tariffs and regulation and the Trustee does not receive any additional income or payment from creditors.
There are numerous differences between credit counselling programs and proposals. For more information please contact Allan Marshall & Associates Inc.
