A consumer proposal, one of most often used bankruptcy alternatives in Nova Scotia and Canada in general, is best suited for people who can afford to pay back their debts, but need an extended amount of time to do so. The best candidates for consumer proposals are individuals with a stable income with debts in excess of $5,000 to a maximum of $75,000.
Advantages of filing a consumer proposal include: a maximum period of 5 years, they are generally accepted by creditors, interest is frozen at the filing date, negotiations can be made to only pay back a portion of the debt, wage garnishments stop, and your creditors are “stayed” from pursuing further legal action. In addition, by filing a proposal to your creditors, you will avoid bankruptcy.
At the start of the process, your bankruptcy trustee will review your financial situation and determine how much you can afford to pay back each month. If both you and your creditors agree with the proposed numbers, the trustee will file the proposal. All unsecured creditors must be included.
From this point on, creditors have 45 days to vote for or against your proposal. If a majority vote for the proposal, it is deemed acceptable by all. Generally creditors will vote for, as they would receive even less if you filed for bankruptcy.
If none of the creditors object to your consumer proposal in another 15 days, the proposal will be approved by the court. From that date forward, both you and your creditors are locked into the terms of the proposal.
If 25% or more of your creditors vote against your proposal, your trustee may call a meeting of creditors. It is crucial that you attend this meeting as it will give you and your creditors a chance to work out an arrangement that is decent for everyone.
You are permitted to miss up to two payments during the proposal period without penalty. In this case, the two payments will simply be added to the end of the proposal. However, if you miss more than two payments, the consumer proposal falls apart, and is annulled by the court. Interest charges will then be applied to all debts starting from the day you filed.
In regards to the effects of filing a proposal on your credit rating, your credit report will be adjusted to reflect the current situation after the filing. It will likely stay that way throughout the duration of the proposal. A note of the consumer proposal will also stay on your credit report for up to seven years.
Trustee fees are determined by the Superintendent of Bankruptcy, but usually your bankruptcy trustee will be paid from the proceeds of your proposal.
If you are trying to figure out which of the bankruptcy alternatives could work for you and if you are considering a consumer proposal, contact us immediately; Our bankruptcy trustees offer the initial consultation free of charge.