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Before you hurry up and try to declare bankruptcy, there are several other options to consider, with bankruptcy being the last one on your list. Filing a consumer proposal is one of popular debt consolidation options and we will discuss why and find out how to find some who can administer a consumer proposal near you.
Consumer proposal allows you to consolidate your debt and pay it back (all or some of it) to your creditors in monthly instalments. In order to file a consumer proposal, you will need help from a Licensed Insolvency Trustee (LIT) because they are the only ones authorised to administer it. Your LIT will work with you to either repay a percentage of what you owe or modify your payments.
Read on to find out more about everything you need to know about how to file a consumer proposal in Toronto. We will also explain the benefits, documentation requirements, and important considerations when choosing to file a consumer proposal.
Consumer Proposal in Toronto – What You Need To Know
Explain the difference between filing a consumer proposal in Toronto ON and Other provinces
A consumer proposal is a formal agreement between a debtor and creditors, where the debtor offers to repay a portion of what they owe. For example, if you owe $50,000 in various unsecured debt (e.g., bill payments, credit card debts, etc.). With the help of your LIT, you may be able to reach an agreement to repay only $28,000 in monthly instalments of $200.
Note that every financial settlement is different. However, savings of up to 70% might be possible. In Ontario, consumer proposals are typically accepted if reasonable and fair. This is because creditors in Ontario understand that they will get more money from you than they would in a Bankruptcy scenario.
In Toronto, consumer proposals are a popular bankruptcy alternative. Since home equity and incomes are higher in Toronto, this is a more common debt-relief approach than in other areas of the province.
A consumer proposal can be used for consolidating unsecured debt, including:
- Unsecured personal loans
- Lines of credit (LOCs)
- Credit cards
- Collection accounts
- Store credit lines or credit cards
Court-ordered debts (such as child support and alimony arrears), student loans less than 7 years old cannot be included, and secured debts cannot be included.
Paperwork needed to file a consumer proposal
In order to file your consumer proposal, your Licensed Insolvency Trustee needs to prepare the paperwork. Some of the required documents include:
- consumer proposal documentation
- the Assessment Certificate
- a Statement of Income and Expense
- the Statement of Affairs
Each of these documents that your LIT may ask you to sign is there to serve a purpose. Some of them are required by Canadian bankruptcy law and are necessary to provide creditors with information about your financial situation. That information will help them decide whether to agree to your consumer proposal or not.
All additional forms and documents are used by your LIT to ensure that all your responsibilities and duties have been clearly explained to you. You can find out more at the bankruptcy and consumer proposals resources section.
How Does a Consumer Proposal Benefit You?
Filing a consumer proposal in Toronto is probably the best alternative to declaring bankruptcy. However, it’s not the right debt-relief solution for everyone and that’s something you should discuss with your LIT.
Now, let’s take a look at some of the most prominent benefits of consumer proposals:
- Avoid bankruptcy. People decide to file a consumer proposal because it’s a much safer alternative to bankruptcy. It benefits both the debtor and the creditor. Creditors in Toronto usually accept consumer proposals if debtors offer more than they would expect to get through a bankruptcy process.
- Lower monthly payments. Your LIT will negotiate for you to repay only a certain percentage of the original amount you owe. Sometimes, debts can be reduced by as much as 70%. Your interest also stops once you file a consumer proposal, which leads to greater savings over a second mortgage or debt consolidation loan.
- Keep your assets. Probably the most important benefit of a consumer proposal is that you keep all your assets, including any investments, tax refunds, and home equity.
- Get creditor protection. Once the consumer proposal process begins, you automatically get creditor protection. It means that there won’t be any wage garnishments or collection calls, and it is binding on all creditors.
- Avoid surplus income. Consumer proposals have a fixed payment, unlike bankruptcy, where the more you earn the more you pay. Consumer proposals are the best option if you expect your income to increase.
Top Considerations for Choosing to File Consumer Proposal in Toronto
Many Ontarians decide to file consumer proposals as an alternative to bankruptcy because consumer proposals are the sole debt settlement program in Canada that is approved by the government.
If your debt situation has gone out of control and you need to start with a debt settlement program right away, here are a few considerations you should bear in mind.
Amount of Debt You Have Accumulated
The official minimum amount you must be facing to become eligible for filing a consumer proposal in Toronto is $1,000. In reality, it’s highly unlikely that a person would file a consumer proposal for such a small debt. The threshold is set low so that consumer proposals stay accessible to Canadian citizens.
The level of debt for consumer proposals ranges from $1,000 to $250,000, or even more in the case of a joint consumer proposal. A joint solution is often taken up by spouses who are trying to find a solution to their household’s debt situation.
If your debt surpasses the $250,000 threshold, you could probably file a Division I proposal, which is similar to a consumer proposal but with slightly different guidelines.
Alternative Options Available and Limitations
Besides consumer proposals, there is a range of other debt-relief options such as debt consolidation loans, HELOC (Home Equity Line of Credit), Home Equity Loan, Debt Settlement, and Debt Management Programs, and Debt Counselling.
Debt consolidation is a good option if you have a stable income and aren’t insolvent. It will enable you to combine several payments into one monthly instalment. The most significant advantage of debt consolidation is that it will not negatively affect your credit rating.
Entering a debt counselling program is another safe way to improve your finances before becoming insolvent. These programs will consider your income and total debt in order to analyse your financial status. Then, they will advise you on how to improve your budget and get better control over it in the future.
Customer Reviews and Success Stories
When looking for a Licensed Insolvency Trustee to help you with filing a consumer proposal in Toronto, the first question you should ask them is – “Are you licensed?” There are many debt consolidation companies who may offer to administer your consumer proposal process, but aren’t licensed.
In today’s increasing digital age, consumer reviews and testimonials are important social proof for people looking to hire an experienced LIT. Typically, most people have little to no experience with filing consumer proposals. This means that an LIT plays a huge role in their understanding of the process.
Going through online reviews and client testimonials will help you feel more secure in your choice. In the consumer proposal and bankruptcy field, an LITs proven track record is everything. Look for a Licensed Insolvency Trustee in Toronto who is transparent and has a proven ability to get the work done the right way
Testimonials and reviews are also a great way to find out more details about the services an LIT provides.
Costs of Filing a Consumer Proposal
What determines the cost of a consumer proposal? Since every case is unique, the cost of filing a consumer proposal depends on the type of deal you can make with your creditors. What the creditor agrees to accept is what the debtor pays, and there are no additional or upfront fees.
The starting point in determining costs is for your LIT to calculate what you would pay in case you filed for bankruptcy. That is the minimum that your creditors will be willing to accept. Your LIT will calculate:
- any surplus income payments that you may have to make (in case you filed for bankruptcy);
- net sales value of all the assets you would have to let go in a bankruptcy case.
In Toronto, incomes are often higher than in other cities in Ontario and that’s why many people in the Greater Toronto area get the surplus income penalty in bankruptcy. To avoid this penalty, people decide to file a consumer proposal instead of bankruptcy because it allows them to spread the penalty amount over a period of up to five years (which lowers their monthly instalment).
Since a Licensed Insolvency Trustee is the only person authorised to conduct the consumer proposal process, it will cost you $1,500 to file it. You will have to pay the initial setup fee and then the balance to move forward. Your LIT will take 20% of your future payments, which is the price you pay for having them manage and oversee your consumer proposal process.
What Should You Expect From the Process of Filing a Consumer Proposal in Toronto?
Going through difficult financial situations can be nerve-racking and people need a little bit of hope to get through.Remolino & Associates are LIT and bankruptcy trustees in Toronto know that every problem comes with a solution. We are there to go above and beyond to provide you with the support, information, and understanding you need to make the best possible decision.
Many of our clients had been going through years of financial burden and adamant stress before which we managed to resolve. And there is nothing better than realising you can get another fresh start.
Book A Free Virtual Consultation
Remolino & Associates are experienced Licensed Insolvency Trustees with extensive experience and skills.
In addition to running the trustee practice, we also provide help with other debt solutions (e.g., student debt, tax debt, small business debt, etc.), budgeting, and money management.
Reach out to Remolino & Associates to get a fresh outlook on your financial situation and a fresh start at getting your life back. book a virtual appointment if you are feeling the financial crunch and we will create a unique debt-relief strategy for you.