Debt Relief Experts
A consumer proposal protects your assets while helping you eliminate debt. Unlike bankruptcy, you can keep your house, car, investments, and personal belongings while negotiating a settlement with your creditors.
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How Does a Consumer Proposal Protect Your Assets?
A consumer proposal protects your assets in two important ways:
- It allows you to keep all your assets while settling your debts through an affordable payment plan
- It provides immediate legal protection through a stay of proceedings that stops creditors from taking collection action or seizing assets.
A consumer proposal is a legal debt settlement agreement between you and your creditors that allows you to settle your debts by paying a portion of what you owe. One of the key benefits of a proposal is that you keep control of your assets throughout the process. When you file a consumer proposal, you maintain ownership of everything you own. There’s no requirement to surrender property as there might be in bankruptcy.
Creditors often accept proposals because they typically receive more than they would in bankruptcy, even though you keep your assets. Your creditors agree to accept a payment plan based on your income and value of non-exempt assets, but you are not forced to sell or surrender any assets. Any asset appreciation following the acceptance of your proposal belongs to you.
Upon filing a consumer proposal, you receive immediate legal protection through a stay of proceedings. This court-ordered protection stops creditors from taking legal action against you or attempting to seize your assets. Wage garnishments must stop, and any existing legal proceedings by unsecured creditors are suspended.
Can You Keep Your Home in a Consumer Proposal?
Yes, you can keep your home in a consumer proposal as long as you maintain your mortgage payments. A consumer proposal only deals with unsecured debts – your mortgage and other secured debts are not included in the proposal. Secured creditors retain all their rights to seize their collateral if you default on payments. This means you must continue making regular mortgage payments directly to your lender to keep your house.
Here’s what you need to know about your house and mortgage during a consumer proposal:
- Your mortgage lender cannot change your mortgage terms or foreclose simply because you filed a consumer proposal.
- Your mortgage payments must stay current to avoid foreclosure
- You can renew your existing mortgage during the proposal
- Getting a new mortgage or refinancing may be challenging until the proposal is completed
- Any equity in your home may influence your proposal payment amount
- You can sell your home during a proposal; any amount you receive does not affect your agreed-upon proposal payments.
If you have a high- or negative-equity mortgage or you can no longer afford the payments, you have the option to surrender it before filing. Any mortgage shortfall would then be included in your proposal debt.
What Happens to Vehicles and Car Loans?
You can keep your vehicle in a consumer proposal, whether owned, leased, or financed. If you own a vehicle outright and its value exceeds your provincial exemption limit, the excess equity may affect how much you need to offer creditors in your proposal. For financed or leased vehicles, secured creditors retain their rights to seize the vehicle if you default, so you must maintain your regular car loan or lease payments to avoid repossession.
If you have an expensive car payment that’s causing financial strain, you have options:
- Keep the vehicle and continue payments
- Return the vehicle before filing and include any shortfall in your proposal
You can even keep multiple vehicles in a consumer proposal, provided you can maintain any related payments.
What Happens to Savings and Investments in a Consumer Proposal?
All your savings, pension accounts and investments are protected in a consumer proposal, including:
- Bank account balances
- TFSAs
- RRSPs (including recent contributions)
- RESPs
- Other investments
The Canada Revenue Agency (CRA) cannot keep your tax refund when you file a consumer proposal, although any tax debt you owe can be included in your proposal.
If you receive an inheritance or windfall during your proposal, you can keep it.
What About Personal Property and Household Items?
You keep all personal property and household items in a consumer proposal, including:
- Furniture and appliances
- Electronics
- Clothing
- Tools of your trade
- Collections or valuable items
- Business assets
There are no restrictions on what personal items you can keep, regardless of their value. This differs from bankruptcy, where provincial exemption limits may apply to certain assets.
How Do Credit Cards and Bank Accounts Work?
When you file a consumer proposal:
- You cannot keep your credit cards when you file a consumer proposal. All cards must be surrendered to the Licensed Insolvency Trustee, and existing credit accounts will be closed.
- You can keep your bank accounts at institutions where you don’t owe money
- You may need to move accounts if you have debt with your current bank
- You can apply for a secured credit card to rebuild credit soon after filing
It’s important to open a new bank account before filing if you have debt with your current bank to avoid any right of offset issues.
Keep Your Assets, Eliminate Debt
What Role Do Assets Play in Your Proposal Terms?
While you keep your assets in a consumer proposal, your creditors will still expect to receive a benefit from the value of any significant assets you may own, except assets exempt from seizure by the Bankruptcy and Insolvency Act or provincial or federal law.
So, while a consumer proposal is a debt settlement offer, your assets influence your proposal terms in several ways:
- The equity in your assets, based on current, helps determine a fair proposal offer
- Creditors expect to receive at least what they would in a bankruptcy
- Your consumer proposal payments must reflect any significant asset value
For example, if you have $20,000 in equity in your house and that’s your only asset, a viable proposal might be $400 per month for 60 months or $24,000. With that proposal, the creditors are happy because they received more than the $20,000 they would have received if you had declared bankruptcy and the trustee sold your house.
Learn more about the cost of a consumer proposal.
Can I Sell Assets Before I File a Consumer Proposal?
Selling or transferring assets for less than the fair market value before filing a consumer proposal requires careful consideration. Your Licensed Insolvency Trustee must review all transactions in the year before filing and, in some cases, up to five years prior.
The following transactions may be reviewed or challenged:
- Selling assets for less than fair market value
- Transferring assets to family members or friends
- Giving away property or valuable items
- Preferential payments to certain creditors over others
- Using savings or investments to pay specific debts
- Taking on new debt to pay for assets
If reviewable transactions are determined to disadvantage creditors unfairly:
- Your proposal may be rejected by creditors
- The transaction might need to be reversed
- You may need to increase your proposal payments
- Legal action could be taken to recover assets
- The court might refuse to approve your proposal
Can You Acquire New Assets During a Consumer Proposal?
Once your creditors accept your consumer proposal, your payment terms are fixed. You can acquire new assets during your proposal, save money and invest, and receive an inheritance or gifts without impacting your proposal.
Is a Consumer Proposal The Right Option?
A consumer proposal is a debt relief solution that helps Canadians eliminate unsecured debts like credit cards, personal loans, student loans, payday loans, income tax debt, and lines of credit.
A consumer proposal protects your assets while helping you eliminate debt. Not all debt relief options can preserve your assets.
Here’s how different debt solutions can impact your assets while restructuring your debt:
Restructuring debt through a debt consolidation loan provides no legal protection for assets. In fact, if you consolidate unsecured debt into a secured consolidation loan, you may be putting your assets at risk. You must also qualify for a consolidation loan based on your credit rating. To qualify for a consumer proposal, you must be unable to pay your debts as they come due.
There is no automatic stay of proceedings to protect assets with a debt management plan. Each creditor must agree to participate. If any creditor chooses not to work with your credit counsellor, they can continue to take collection action. Additionally, credit counselling requires you to repay 100% of the debt owed, while a consumer proposal allows you to repay a portion of your debt.
As discussed, bankruptcy requires you to surrender non-exempt assets or make additional payments for any equity in those assets. The length of a bankruptcy is set by law and is quicker than a consumer proposal. Those monthly payments can be quite high if you have significant assets, especially when combined with potential surplus income.
Consider a consumer proposal if:
- You’re able to pay a portion of your debts
- You have significant assets that would be seized in a bankruptcy
- You expect to receive an inheritance of assets in the future
You don’t have to struggle with debt while worrying about losing your assets. Contact us today for a free consultation to learn how a consumer proposal can help you become debt-free while protecting what you’ve worked hard to acquire.
