Consumer Proposals in Ontario
A Proposal is an offer to pay all of your unsecured creditors on payment terms you can afford. In order to file a Proposal you must work with an Administrator.
Common benefits of a Proposal:
- An approved Proposal is legally binding on all unsecured creditors.
- Garnishments are stopped immediately.
- Legal actions are stopped immediately.
- Collection actions are stopped immediately.
- You keep all your assets, unless you include an asset as part of the Proposal.
- Usually only one payment per month to the Administrator with no interest.
- Virtually all types of common unsecured debts are included (including taxes).
- The payments are based on your ability to pay, not a creditors’ demands.
- Payments continue for a set period of time and not more than 5 years.
- Two private credit counselling sessions are included to help you.
Proposal vs. Second Mortgage - Example
- Married couple with 2 kids, net after tax income $3,200 per month.
- Own a house worth $150,000, with $100,000 mortgage. Net equity from house of $35,000 ($150,000 less $100,000 mortgage, less $15,000 estimated selling costs: commissions, penalties & legal fees)
- $50,000 of unsecured debt: $25,000 on several credit cards at an average of 18.5% interest; and $25,000 line of credit with a bank at 8.5% interest.
Second Mortgage Option
The couple qualify for $35,000 as a second mortgage (total mortgage debt equal to 90% of house value) at 8.5% interest repayable over 10 years. The mortgage proceeds of $35,000 are used to pay $25,000 on credit cards, $3,000 for broker costs, and $7,000 on the line of credit. The $18,000 balance that is left on the line of credit is set up as a term loan to be repaid over 10 years. The payments on the $35,000 mortgage and the $18,000 term loan would be approximately $660 per month for 10 years and total $79,000, including $26,000 interest.
The Proposal must provide more than the $35,000 net house equity for the creditors. An example Proposal would be $40,000 paid by monthly payments of $667 over 5 years with no interest. The monthly payments would be made to the Administrator for creditors and Administrator’s costs.
Saved $39,000 - $3,000 broker costs, $26,000 of interest and $10,000 of debt written off. This equals FREEdom from debt 5 years earlier.
Find commonly asked questions and further information about Proposals here. Please contact us if you cannot find an answer. Proposal FAQs page.
A Proposal could be the solution to solve your debt problem and allow you to become Free from Debt. We can help you assess your situation to determine if a Proposal is right for you.
Under the Bankruptcy and Insolvency Act there are two types of Proposals: Division I Proposals and Consumer Proposals. A Division I is applicable to corporations and individuals. Consumer Proposals can be filed by individuals - only if their debt does not exceed $250,000 (excluding mortgages on their home).
The basis for all Proposals must be that it will provide a better distribution for creditors than will bankruptcy. The Proposal process allows an individual or a company to maintain control of assets, while settling debts from alternative sources.