What Happens to Your Assets When Filing a Consumer Proposal?

Why file a consumer proposal?

Consumer proposals are a legal form of debt settlement, and must be filed with the support of a Licensed Insolvency Trustee – the only professionals in Canada legally able to file all forms of debt relief. The primary function of a consumer proposal is to reduce the overall amount of debt you owe by up to 80%, by a Licensed Insolvency Trustee making formal negotiations with your creditors to enable you to repay less than you owe. Many Canadians facing insolvency opt for a consumer proposal over bankruptcy, as it enables you to keep your assets and face less severe consequences than a bankruptcy. Here are the most popular reasons to file a consumer proposal:

• Keep your assets, including your home and car. In bankruptcy, you have to surrender any non-exempt assets
• Reduce your unsecured debt by up to 80%, with lower monthly payments
• Protection from creditors, including collection calls and legal threats
• Avoid bankruptcy and the more severe consequences
• Avoid surplus income – fixed payments, no matter if your income increases
• Legally binding, so your creditors must comply provided the majority accept
• Debt free in a maximum of 5 years
• Interest is frozen as soon as you file

Can I keep my home when filing a consumer proposal?

You might be worried about losing any property you own. Yet you can keep your home when filing a consumer proposal as long as you can maintain your monthly mortgage payments, and your consumer proposal payments. As a mortgage is a secured debt, it is treated differently to unsecured debts. This means that a mortgage lender does not have the right to act on you or change your mortgage terms because you have filed a consumer proposal, unless you become behind on your agreed monthly mortgage payments.

How soon can I buy a house after filing a consumer proposal?

In Canada, it is feasible to buy a home and get a mortgage after filing a consumer proposal. Although having a consumer proposal will have a negative impact on your credit report, it is temporary and there are actions you can take to help build your case for applying for a mortgage successfully. An important step to take is to begin rebuilding your credit. This becomes much easier once your fixed, affordable monthly consumer proposal payment is in place and you can start to save money. At Spergel, we can support you through this process. Equally, having a substantial downpayment to put down on a mortgage and a steady income will help your case once you have completed your consumer proposal. Discover more about life after filing a consumer proposal.

Can I keep my car when filing a consumer proposal?

Unlike in bankruptcy where you can keep just one vehicle valued below the provincial limit, a consumer proposal enables you to keep all vehicles, irrelevant of value. This is applicable also to any car loans or financed vehicles. As consumer proposals can only reduce unsecured debt, secured debts including car loans are unaffected. You can keep your car as long as you can stay current on both your monthly car payments, and your consumer proposal payments. If, however, you miss payments, your car lender may repossess your vehicle. If you feel like this could happen, it is a good idea to discuss an action plan with an experienced Licensed Insolvency Trustee at Spergel.

Can I keep my personal possessions when filing a consumer proposal?

Unlike in bankruptcy, your creditors do not have any claim to your personal assets and possessions in a consumer proposal. Although you will need to inform your Licensed Insolvency Trustee of any income, assets, and possessions you have, this is only so that they can prepare a fair settlement with your creditors. Many Canadians decide to sell their high-value assets, including jewellery, vacation homes, and antiques in order to help repay their consumer proposal. In some cases, creditors will request any valuable assets to be sold before agreeing with moving ahead with a consumer proposal.

How are my savings and investments affected by filing a consumer proposal?

When you file a consumer proposal, you are entitled to keep any registered savings plans, including RRSPs. Only when you file bankruptcy would any contributions made in the past twelve months need to be surrendered to a Licensed Insolvency Trustee. A consumer proposal also allows you to keep any savings, RESPs, and other investments you may have contributed to. If you have investments, this makes a consumer proposal a great alternative to filing bankruptcy. You might wish to withdraw any funds from banks or institutions where you owe debts, as lenders could withdraw funds from your account to offset any outstanding debt payments – often without warning.

How are my tax returns and government benefits affected by filing a consumer proposal?

When you file a consumer proposal, you continue to file your tax returns as usual. If you are owed a refund, this will be reviewed against any outstanding balance you have to the Canada Revenue Agency (CRA). If you have a balance owing, the CRA will pre-rate your tax refund to the date of your consumer proposal, applying the pre-proposal amount to your tax debt. They will then send the remainder of the refund. If you do not owe the CRA, you will receive the full refund. This same scenario applies to GST rebates and other government benefits.

How do I file a consumer proposal?

A consumer proposal is a legal form of debt settlement that can only be administered by a Licensed Insolvency Trustee, the only professionals in Canada to be able to file all forms of debt relief. If you think a consumer proposal might be right for you, perhaps because it will enable you to keep your assets, book a FREE consultation with an expert Licensed Insolvency Trustee at Spergel. We will review your debts, without judgement, and propose an appropriate form of debt relief for you. We offer personalized advice and will help you to navigate the complexities of debt relief with confidence. As the ‘get rid of debt people’, we have been helping Canadians to gain debt relief for nearly 35 years, and we are here to help you too.