A Consumer Proposal is a formal, legally binding process which involves a reduction of unsecured debt, or an extension of time for repayment of the debt or both.
A Consumer Proposal must be completed within five (5) years. In addition, the Consumer Proposal must offer the creditors more money than they would otherwise receive in a hypothetical bankruptcy scenario, but otherwise a Consumer Proposal is a flexible tool which can be structured in a number of ways:
Fixed Monthly payments
The most common structure for a Consumer Proposal is fixed monthly payments for a fixed period of time. The Consumer Proposal can be paid off early if the consumer is able to increase their monthly payments and / or make lump sum payments during the term of the Consumer Proposal. There is no penalty for early repayment.
For consumers who work seasonally or have fluctuating income, a Consumer Proposal can be structured so that higher payments are made during peak earning times and lower payments are made during low earning times. The Consumer Proposal must clearly set out the variable payment schedule.
Step up payments
For consumers who know their income will increase during the term of the Proposal, payments can start out lower and increase over time. The Consumer Proposal must clearly set out when and how payments will change.
Step down payments
For consumers whose income will decrease during the term of the Proposal, payments can start out larger and decrease over time. Again, the Consumer Proposal must clearly set out when and how payments will change.
Lump Sum payments
A Consumer Proposal may be funded in one or morel lump sums. This is most common where a third party, such as a family member, will be providing the Proposal funding on behalf of the consumer.
Payments from the sale of assets
A Consumer Proposal can involve a sale of assets, such as a house or other investments, with all or a portion of the proceeds being paid into the Proposal. If a debtor promises to sell assets as part of a Proposal, consideration must be made for tax consequences, if applicable.
Amendment to existing consumer Proposal
In extraordinary situations, an existing consumer Proposal can be amended if there is a material change in circumstances which requires a change to the existing Proposal structure. If an amended Proposal is filed, the creditors get to vote on whether they agree to the amended Proposal.
This is the second of five blogs I wrote for the MNP Debt Series on Consumer Proposals. Click here to read the first in the series.
Lana Gilbertson is a Licensed Insolvency Trustee serving the Greater Vancouver and Vancouver Island regions. To learn more about how Lana can help, contact her directly at 604-637-1599.