A question we often get asked when starting the consumer proposal process is what happens after filing a proposal. There’s a lot of things that will and can happen during the consumer proposal process, which is why we’ve decided to cover it all here today. In this article, we’ll take you through each step of Canada’s consumer proposal process, from preparing your proposal to the aftermath of completing one.
The Full Timeline of Your Consumer Proposal: Start to Finish
The Role of a Licensed Insolvency Trustee (LIT)
A licensed insolvency trustee is responsible for administering your consumer proposal, they play a key role in the proposal process. Their purpose is to protect your rights as the debtor while acting as a third party that interacts with creditors on your behalf. 4 Pillars will connect you with a LIT — we have helped thousands of Canadians reduce and pay off their debts.
A consumer proposal is a type of insolvency proceeding in which you negotiate with creditors to have your overall debt balance reduced. In return, you agree to repay a percentage of your total debts.
It’s important that you don’t miss payments under a consumer proposal. 4 Pillars and your LIT will work with you to create a realistic repayment plan that is affordable for you. The main benefit of a consumer proposal is that it’s interest-free and only requires you to pay a percentage of your full debt balance back.
How to Prepare for a Consumer Proposal
- Book a free assessment with 4 Pillars: 4 Pillars will do a free, no-judgement assessment of your debt situation. We’ll provide advice for managing and eliminating your debts on your own, as well as whether a consumer proposal is right for you. During the assessment, you can ask us any questions you like about consumer proposals, bankruptcy, debt management, and licensed insolvency trustees. Book a free consultation here!
- Drafting your consumer proposal with an LIT: During our consultation, we’ll work with you to determine if a consumer proposal is the best option. If moving forward with a consumer proposal, an LIT will help you draft up a repayment plan. A repayment plan is determined using your total debt balance, current income, expenses, and assets to calculate a realistic repayment timeline.
Sending Your Consumer Proposal to Creditors
We’ll connect you with an LIT who will assist you in formally initiating the consumer proposal process by filling out the relevant paperwork. They’ll ask you for basic information about yourself and request any relevant financial documents needed to file. The LIT files the consumer proposal and notifies applicable creditors on your behalf.
Once filed, you’re legally protected from any legal or collection actions being taken against you because of your debt. You also don’t need to make payments on any of the debts in your proposal until a decision has been made.
Starting from the day your consumer proposal was filed, creditors have a maximum of 45 days to accept or reject your proposal.
During this time, creditors have the right to request to meet with you and discuss the proposal. Your LIT will attend the meeting alongside you to help in negotiations. The creditors will typically ask questions regarding your proposal and potentially propose an alternate offer. During the meeting, your LIT will enforce your rights as the debtor and ensure the terms of the offer remain reasonable for both parties.
After Your Proposal is Approved
Your consumer proposal is considered approved once the maximum of 45 days has passed. If asked to meet with creditors, they will vote to accept or reject your proposal there. Your consumer proposal is accepted if at least 51% of your total debt balance votes in favour. Creditors who voted no will still need to abide by your proposal’s terms if accepted.
Once accepted, the duty falls on you to follow your proposal requirements. This means making all monthly payments on time and attending credit counseling sessions.
What happens if I don’t follow the terms of my consumer proposal agreement?
If you miss your monthly payments and don’t attend credit counseling sessions according to your consumer proposal’s terms, the agreement can be terminated.
You are legally allowed to miss two payments during your proposal, but once you miss a third payment, your consumer proposal is automatically terminated. You’re now required to pay the full amount of your debts under their original terms. Additionally, your debts will once again accumulate interest if applicable.
When your consumer proposal is annulled, you should speak with your LIT about resolving the issue.
If Your Consumer Proposal is Declined, What’s Next?
If your consumer proposal is denied, you can refile with more reasonable terms. Usually, this involves repaying a larger percentage of the total debt and/or paying it off in a shorter timeline than originally proposed. Your LIT will help you draft up a better offer that still aligns with your budget and needs.
Alternatively, you can:
- Pay off the debt in full and under the creditor’s original terms.
- Consolidate your debts.
- File for bankruptcy.
If at least 51% of your total debt balance votes to reject your proposal, your proposal will be rejected.
What Happens After You Pay Off Your Consumer Proposal Debt
The big question: What happens once the consumer proposal process is over and your debt is paid off?
- You’ll receive a Certificate of Full Performance from your LIT. This is an official document signifying that the terms of your consumer proposal have been met.
- You’ll also receive a Statement of Receipts and Disbursements. This is an official document which outlines the total dollar amounts distributed to creditors.
- You’re no longer required to make payments to the creditors involved, and are legally considered free of those debts.
- You are still responsible for any secured and unsecured debts that were not included in your consumer proposal. For example, your mortgage is a secured debt which can not be added to your consumer proposal.
Frequently Asked Questions About the Consumer Proposal Process
Can I rebuild my credit before I pay off my proposal?
Yes, you can with a secured credit card. As long as you can reliably pay off your balance in full, you can rebuild your credit slowly during the consumer proposal process. Nevertheless, we recommend prioritizing repaying your debt before considering how to rebuild your credit. Once you eliminate your debt through your consumer proposal, you can jumpstart credit rebuilding.
Consumer proposals do impact your credit rating. That doesn’t mean you should avoid pursuing a consumer proposal in favour of a better credit score. Suffering from high debts and money stress to avoid a temporary hit on your credit is a dangerous practice. It often results in you never getting out of debt.
What’s important to remember is that the impact your consumer proposal has is temporary. Rebuilding your credit will be much easier once you’ve paid off your debt and pursued credit counseling via your consumer proposal.
Learn more in our blog: Should I use a consumer proposal or preserve my credit rating?
Will my credit score go up after my consumer proposal is completed?
Not immediately. Once your consumer proposal is completed, it will stay on your credit report three years after the fact. That being said, timely and regular payments toward your consumer proposal debt can have a positive impact on your credit score over time. However, until you’ve completely paid off your proposal debt, it will still be hard to reach a good credit rating. Ask a 4 Pillars consultant about rebuilding your credit during a consumer proposal.
