Consumer proposals – There is life after debt!

Given the current economic conditions, more people are turning to consumer proposals to settle their debts, rather than filing outright bankruptcy.  As one of the leading Bankruptcy Trustees on Vancouver Island, we have helped many people through the consumer proposal process and onto better lives.

What is a Proposal?

A consumer proposal is legal process provided by the Bankruptcy and Insolvency Act for anyone with over $5,000 but less than $250,000 in unsecured debt, or $500,000 per couple (excluding their primary residence mortgage).  Unsecured debt might include credit cards, lines of credit, loans and unpaid income tax.  The consumer proposal is an agreement to repay a portion of the unsecured debts through the services of a Trustee in Bankruptcy. The proposal terms are normally structured over 5 years with one monthly payment.  While the amount of debt being repaid is usually substantially less than the actual amount owed, it is normally more than the creditors would get if the person went into Bankruptcy.

The consumer proposal is voted on by all the creditors involved, if the majority accepts, it is binding for all creditors.  Once a proposal is accepted by the creditors, all interest is frozen and all unsecured debt collection efforts, including calls, letters, wage garnishments, and legal actions will stop.

During the process, a person can miss two payments, which would then be added on to the end. If a third payment is missed during this process, the proposal would be annulled and the creditors rights would be revived to purse the person for collections of their account, including the interest since the time the proposal was filed.

The main benefits of filing a consumer proposal over bankruptcy are as follows:

  • allows a person to keep their assets including a home and investments like an RESP (note: secured loans on assets must be paid in order to retain those assets);
  • the person works in a profession that does not allow bankruptcy;
  • the stigma of bankruptcy is totally unacceptable to the person;
  • bankruptcy may prohibit sponsorship of a family member for immigration purposes;
  • going into bankruptcy may force a spouse into bankruptcy;
  • repay less than they owe and make the monthly payment manageable, yet still receive the same creditor protection they would receive in a bankruptcy;
  • make their payments over a period of up to 5 years, with the flexibility to pay their balance off earlier; and
  • actually make lower monthly payments than they would in a bankruptcy if they have a higher than average income.

Contact us today.  We will assess your financial situation to review all your financial options.  If it’s determined that a consumer proposal is the best choice for your situation, we will prepare all the necessary paper work and table your offer to the creditors.  While this arrangement may not work for everyone’s financial situation, a consumer proposal may be the best way to provide you a financial fresh start.

How to avoid bankruptcy – File a Consumer proposal

A Consumer Proposal is a formal procedure that is governed by the Bankruptcy and Insolvency Act (“Act”).  It allows insolvent debtors to settle their debts for less than they actually owe, while avoiding bankruptcy.   Declaring bankruptcy can cause embarrassment, seizure of your assets, and can pose a financial hardship if required to pay surplus income.  A consumer proposal can deal with most of your unsecured debts, including:

  • credit cards of all kinds
  • overdraft accounts
  • unsecured lines of credit
  • loans
  • personal loans from family, friends and others
  • student loans (if older than 7yearsj)
  • income tax debt
  • ·GST

Secured debts, such as mortgages owing on your home and leased or financed vehicles would not form part of a Consumer Proposal and must be dealt with directly with the secured creditor.

The Act ensures that you are protected from legal actions by your creditors and means that your debt repayment follows a strict and monitored process. Your trustee will negotiate a settlement between you and your creditors, and you will typically make one monthly payment over a 5 year period.  Once you have made your final payment, your debts will be eliminated. Though you will be repaying more to your creditors than you would in a bankruptcy, these payments are spread out over a longer period of time.

What are the Advantages?

  • You are able to retain your assets.
  • It can be 75% less expensive then repaying your debts on your own.
  • Your creditors cannot commence or continue legal actions against you once the proposal is filed.
  • Professional accreditation can be retained which may not be in bankruptcy (for example, insurance brokers, director of a corporation, licensed real estate broker)
  • Interest if frozen at the date of your proposal.
  • Under a proposal, you will still be able to sponsor a family member through the Canadian immigration process, were it may be hampered under a bankruptcy.
  • It is an effective alternative to bankruptcy from the aspect of its effect on your credit rating: with a proposal your credit rating is not as adversely affected as in a bankruptcy.
  • If filing a second/third bankruptcy, the process can be lengthy and stressful.  A proposal would avoid this.
  • You likely won’t lose your income tax refunds.
  • If you opt to declare bankruptcy, it can be costly.  You may be required to make additional monthly payments, called surplus income payments. The more you earn at your job, the more you will pay monthly and the longer the duration.

More and more Canadians are looking at the Consumer Proposal option to provide them a financial fresh start.  At Doug Lee & Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

Dancing with the Taxman – Proposals to Canada Revenue Agency

You can often make a deal with the Canada Revenue Agency (CRA) for taxes you owe. You can either negotiate payment terms or file a Consumer Proposal under the Bankruptcy and Insolvency Act (BIA) rather than filing for bankruptcy.

If you owe CRA and cannot pay the balance in full, you can explain your financial situation to negotiate a payment plan. If you are unable to successfully negotiate terms,CRA may take further action against you to collect the taxes owing by withholding your tax refunds and HST Credits, garnish your wages, take funds from your bank account and/or place a lien on any real property you own until your debt is paid in full.They do not have to go through the Courts so they can act very quickly.

You will be relieved to hear that CRA will consider a reduction on your tax debt through a Consumer Proposal. CRA will not negotiate an informal offer with you on the principle amount owing unless you file a Consumer Proposal. This will ensure to CRA that you have disclosed all of your assets, and that all debts are being treated equally.

A Consumer Proposal is a legal process under the BIA that enables you to make an offer to all creditors to modify your payments or to pay them a percentage of what you owe. A proposal allows you to have a fresh start without going bankrupt.

There are several things to consider before making a Consumer Proposal to CRA.  A major success factor in dealing with CRA is communication.  You must have all of your tax returns filed and up to date prior to making an offer.  It is CRA’s mandate to ensure all tax returns are filed and that you are in compliant with the IncomeTax Act. CRA will require detailed information on your financial situation, the causes of your difficulties and the steps taken by you to get back on solid financial ground. CRA needs to be convinced that you have not been abusing the process, that the proposal is the best deal possible and that it will result in a greater return than CRA would realize in a bankruptcy.

In addition, there are a number of provisions required in a proposal prior to its acceptance by CRA:

  1. Income tax installments and returns will have to be kept current going forward; and
  2. If applicable, HST collected and payroll taxes deducted will have to be remitted on a timely basis going forward; and
  3. If applicable, payroll source deductions in arrears are required to be paid within 6 months after the approval of the proposal by the court, or within a timeframe mutually agreed to by CRA.
  4. In some cases, CRA may require additional terms.  

When making an offer to CRA, you must offer them more than they would receive in a bankruptcy situation. CRA will often start negotiating from the standpoint of being paid “100 cents on the dollar” of what it’s owed. This of course is unrealistic given the financial circumstances of most tax debtors. The return expected by CRA will vary depending on your financial circumstances.  It is essential to put one’s best foot forward at the start by submitting a proposal that is fair and reasonable in your circumstances.  Figuring this out on your own can be complicated.  At Doug Lee& Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

Avoid Bankruptcy – A Consumer Proposal is the way to a Fresh Start

Do you find yourself in a situation where you are having trouble paying all your bills even though you have a good job?  Have you thought of filing for bankruptcy but really don’t want to due to fear?  If you answered yes to either of those questions, maybe it’s time for you to consider a Consumer Proposal.

What is a Consumer Proposal?  It is a legal procedure to those who are having financial difficulties, but can still afford to pay a portion of their debt.  At our firm, we would put together a payment plan that works for both you and the creditors.  We would then present that plan to the creditors.  If and when your plan is accepted, it becomes a legal binding settlement for your debts.

Why would your creditors accept a Consumer Proposal and only get a portion of the full amount they are owed?  A Proposal is a better option for them because even though they may not get the full amount owing, they would still receive more with this option then if you were to file for bankruptcy.

Here are a few advantages of a Consumer Proposal:

  • You have the ability to negotiate to repay a portion of the full debt owing.
  • Interest stops accumulation effective the date you file for a Consumer Proposal.
  • The maximum repayment period is 5 years.
  • You can include debts owing to Canada Revenue for unpaid income taxes/HST.
  • You will be protected from your creditors as it is creditor and court approved.
  • The effect on your credit rating is less harsh than a bankruptcy.
  • You would not lose your home or any of your assets.

When you are looking at all your options, ensure you are making the most educated decision possible.  If your best option is a Consumer Proposal, let our team provide you the Fresh Start that you need and allow you to work toward the financial future you always wanted.