refers to the act of negotiation and settlement of unsecured debts with the creditors. Examples of such debts are credit card borrowings, personal loans
, and income taxes. Consumer proposals may be filed in order to negotiate such type of borrowings. On the other hand, secured debt, such as mortgages and car leases, is typically excluded from the proposal. There are some clear advantages of debt negotiation via consumer proposals. Firstly, the maximum repayment period extends over five years. Secondly, settlement through a proposal will be accepted by a simple majority of the creditors. The interest over the debt will be put on hold whenever the borrower submits a proposal. Moreover, the debtor may be able to negotiate a partial repayment of dues with the creditors. In addition to that, the creditors cannot commence a legal action against the debtor. Consumer proposals, in brief, are a better option to bankruptcy if the borrower is able to repay a portion of his debts.
Proposals are usually accepted if the borrower is able to repay a certain amount of their debt. The amount should be in the range of $5.000 to $75.000. In general, consumer proposals represent a better alternative to bankruptcy. It should be noted that the proposal differs from the debt management plan. The second method entails a managed arrangement of the debt, conducted with the assistance of third parties. The final terms of the repayment are at the discretion of the crediting institution. In contrast, the consumer proposal is a legally binding practice which is administered within the court system. It is managed by a bankruptcy trustee who is licensed by the Office of the Superintendent of Bankruptcy. The trustee offers professional debt counseling
, helps in the preparation of consumer proposals, discusses terms with the creditors on behalf of the debtor, and negotiates the settlement provisions.
Initially, the trustee assists the borrower in the assessment of their assets and liabilities. He examines their ability to cover all monthly bills. Then, the trustee will define a reasonable amount of money to be repaid on a monthly basis. Finally, he or she will make a comparison between the income and the full amount of the debt. This will help to establish the length of the period during which the debt
will be repaid. It is important to note that the debtors shall include all creditors when filing a consumer proposal. Family and relatives shall be treated in the same way as all other unrelated creditors of the debtor. If the result is viewed as adequate by the debtor and the creditors, the trustee will prepare all necessary documentation and submit a formal consumer proposal to the crediting institutions. The creditors are obliged to announce their decision within a period of 45 days. A simple majority vote is necessary for the approval of the consumer proposal. If no one raises objections within a fifteen days period, the Court will formally vote in favor of the proposal. Hence, it will become a formally binding agreement between the debtor and the creditors.
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