How Does a Consumer Proposal Work in Toronto? A Step-by-Step Guide




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For many Toronto residents, dealing with overwhelming debt can feel like an insurmountable challenge. Rising living costs and financial pressures often lead individuals to seek effective debt-relief solutions. A consumer proposal is one such option that offers a practical and manageable way to regain financial stability.

This article provides a comprehensive step-by-step guide to how a consumer proposal works in Toronto, helping you understand the process and benefits of this debt-relief strategy.

 

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement between you and your creditors, allowing you to repay a portion of your debts over a specified period (up to five years). Facilitated by a Licensed Insolvency Trustee (LIT), the proposal provides a structured repayment plan tailored to your financial situation.

Consumer proposals are ideal for individuals with unsecured debts up to $250,000 (excluding a mortgage on your primary residence) who want to avoid bankruptcy while retaining their assets. Consumer Proposal Administrator Toronto

 

Step 1: Initial Consultation with a Licensed Insolvency Trustee

The process begins with a consultation with a Licensed Insolvency Trustee, the only professional authorized to file a consumer proposal in Canada. During this meeting, the trustee evaluates your financial situation, including:

  • Total debts and types (e.g., credit cards, payday loans, tax debts).
  • Monthly income and expenses.
  • Assets and liabilities.

This assessment helps determine whether a consumer proposal is the right option for you. If it is, the trustee works with you to design a repayment plan that suits your budget.

 

Step 2: Drafting the Proposal

After gathering all necessary information, the trustee drafts the consumer proposal. The proposal outlines:

  • The total amount you will repay (usually less than the full debt).
  • The repayment period (up to five years).
  • The frequency of payments (e.g., monthly or biweekly).

This repayment plan is designed to be affordable for you while offering creditors a reasonable recovery on their claims.

 

Step 3: Filing the Consumer Proposal

Once the proposal is finalized, the trustee files it with the Office of the Superintendent of Bankruptcy (OSB). At this stage, several legal protections come into effect:

  • Automatic Stay of Proceedings: Creditors must immediately cease collection actions, including phone calls, wage garnishments, and lawsuits.
  • Interest Freeze: Creditors can no longer charge interest on your debts.

 

Step 4: Creditor Review and Voting

After filing, your creditors have 45 days to review and vote on the proposal. For the proposal to be accepted, creditors representing the majority (by dollar value of debt) must agree to the terms.

  • If creditors approve, the proposal becomes legally binding on all parties.
  • If creditors reject the proposal, you can negotiate revised terms or consider other options, such as bankruptcy.

 

Step 5: Repayment Period

Once the proposal is approved, you begin making fixed, interest-free payments to the trustee, who distributes the funds to your creditors. This repayment period is structured to fit your budget, providing predictability and stability.

During this time, you may also be required to attend two financial counseling sessions. These sessions help you develop money management skills and strategies to avoid future financial difficulties.

 

Step 6: Completion and Debt Forgiveness

After you’ve made all required payments, you receive a certificate of completion. At this point:

  • The remaining balance of your unsecured debts is legally forgiven.
  • You are free from the obligations covered under the consumer proposal.

This marks a fresh start, allowing you to rebuild your financial health.

 

Benefits of a Consumer Proposal in Toronto

  • Debt Reduction: You only repay a portion of your debts, often significantly reducing the total amount owed.
  • Asset Protection: Unlike bankruptcy, a consumer proposal allows you to keep your assets, including your home and car.
  • Legal Protection: The automatic stay prevents creditors from pursuing further collection actions.
  • Fixed Payments: Repayment terms are predictable, interest-free, and tailored to your financial capacity.
  • Credit Rebuilding: While your credit score will initially be impacted, completing the proposal positions you to rebuild your credit over time.

 

Who Can File a Consumer Proposal?

A consumer proposal is suitable for individuals who:

  • Have unsecured debts up to $250,000 (excluding a mortgage).
  • Are struggling to meet minimum payments. Consumer Proposal Toronto
  • Have a steady income to support repayment terms.
  • Wish to avoid the more severe consequences of bankruptcy.

 

Conclusion

Filing a consumer proposal in Toronto is a structured and effective way to manage debt while retaining control over your assets. By working with a Licensed Insolvency Trustee, you can negotiate a repayment plan that fits your budget and gain the financial freedom to start fresh.

If you’re overwhelmed by debt, take the first step by consulting a trustee to explore whether a consumer proposal is the right solution for your needs. With the proper guidance, you can navigate the process confidently and achieve long-term financial stability.