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Avoiding Bankruptcy: Understanding the Consumer Proposal in Canada

A consumer proposal is a formal agreement between a consumer and their creditors for the consumer to pay off their debt without filing for bankruptcy. Consumers renegotiate what they owe and agree to pay off a portion of the debt as they can, with repayment terms of up to five years. The person is required to make a monthly payment – ​​interest-free. His assets, whether it’s his house or his car, are fully protected, unlike what happens in bankruptcy. Disadvantage? A consumer proposal has the effect of opening a permanent public file stored in an online searchable database, which has a negative impact on the person’s credit rating.

There are several stages to filing a consumer petition in Canada:

1. Choose a licensed insolvency practitioner : You can contact a licensed insolvency practitioner (LIT) to assess your financial situation and determine whether a consumer proposal is the solution for you. Your SAI will manage and manage the entire process of your consumer proposal. To find a LIT near you, visit the Canadian Office of the Superintendent of Bankruptcy website.

2. Debt assessment : your SAI will ask you a series of questions to find out your current debt and who you owe money to. This will calculate the total amount of your debt. It will also ask you what your current income is to calculate a reasonable payment amount. Your LIT will walk you through the solutions available to you to alleviate your debt to see if a consumer proposal is a solution that works for you.

3. Preparation of the proposal : Once you have defined the amount you can offer your creditors as well as the amount of your monthly payments, your LIT will draw up a proposal that you will need to review and sign.

4. Submission of a consumer proposal : Your LIT will file your consumer petition with the federal government and the court for you.

5. Protection from Creditors : Once your LIT files your proposal, it will send a copy to your creditors for their information. You’ll benefit from consumer protection, also called a “stay of proceedings,” which means your creditors must stop any collection activity or legal action against you.

6. Vote of Creditors : Creditors have the right to request a meeting and ask questions about your proposal before voting. Your LIT will accompany you during this meeting and act as an intermediary to negotiate on your behalf. If your creditors do not request a meeting within 45 days, your proposal is considered accepted. It is important to note that if a majority of creditors vote in favor of your proposal, all creditors must accept it, even if they voted against it.

7. Implementation : Once your proposal is accepted and approved, you will start making the agreed monthly payments. It is also mandatory that people involved in the consumer proposal process take at least two financial management courses.

8. Exit and release : Once your negotiated debt is paid in full, you will receive a certificate confirming that your consumer proposal process has been completed and that you are legally discharged from all debts listed in the proposal.

It’s easy to see why a consumer proposal is becoming more popular than bankruptcy. This procedure actually represents a viable solution for Canadians to get out of debt while regaining financial stability. It’s important to note that the consumer proposal process may vary from province to territory depending on where you live.

This article is intended to provide general information only and is not intended to provide legal, financial or other professional advice. Please consult with a professional advisor regarding your specific situation. The information presented is believed to be factual and current, but we do not guarantee its accuracy and cannot be considered an exhaustive analysis of the topics discussed. Opinions expressed reflect the judgment of the authors as of the date of publication and are subject to change. Royal Bank of Canada and its entities do not promote, either explicitly or implicitly, the advice, opinions, information, products or services of third parties.

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