A consumer proposal is a formal option under the Bankruptcy and Insolvency Act in Canada. A consumer proposal allows people to propose a debt settlement agreement to their creditors. Licensed Insolvency Trustees (LIT) are the only professionals that can accept a consumer proposal and file it with the government.
In a consumer proposal, the debtor proposes to pay a portion of their debts over a period of time, generally a five-year plan. The consumer proposal must be accepted by a majority of the debtor's creditors (represented in dollar value). Once accepted by the creditors and approved by the court, the consumer proposal is binding on all creditors, including those who voted against it.
The terms of a consumer proposal may include a reduction in the total amount of debt owed, a reduction in interest charges, and a consolidation of debts into a single monthly payment. The debtor makes the agreed-upon payments to the LIT, who distributes the funds to the creditors according to the terms of the proposal.
Consumer proposals are an alternative to bankruptcy and can be a useful option for individuals who have a significant amount of debt and have the ability to repay a portion of it over time. A consumer proposal provides a mechanism for debtors to deal with their debt, avoid the negative consequences of bankruptcy and keep their assets.