According to a knol by J. Douglas Hoyes:
A consumer proposal is a negotiated settlement between a debtor (the person who owes the money) and their creditors. Consumer proposals were created by the federal government through the Bankruptcy & Insolvency Act, and once approved by the creditors become legally binding. A successful consumer proposal allows a debtor to make one monthly payment with the proceeds distributed to all creditors, thereby allowing the debtor to avoid bankruptcy.
Although only enacted in Canada, this creation of Canada Federal Government offer a good alternative to personal bankruptcy.
How a consumer proposal works? Mr. Hoyes explained this through an example, as follow:
Suppose the debtor owe $50,000 on various credit cards, bank loans, lines of credit, government taxes, and payday loans. If the debtor is unable to repay in full plus interest, he/she could file a consumer proposal, where he/she can offer to pay, for instance, $350 per month for 48 months, or $16,800 in total. If the creditors accept, the debtor has only one monthly payment to make. At the end of the 48 months period, all debts included in the proposal are discharged.
This is potentially a win-win solution for the creditor and the debtor.
For the creditor, this proposal is better than personal bankruptcy filing by the debtor, which means the creditor will receive even less.
The debtor can have a better standing in his/her credit report, as the consumer proposal are viewed as better rating than a bankruptcy. Moreover, a bankruptcy remains on the credit report for six years, where a consumer proposal only remains for three years.
I think this consumer proposal would also be best implemented in other country, to aid credit settlement be less damaging for both the creditor and debtor.
If you would like to learn more about consumer proposal, I encourage you to visit Mr. Hoyes’ knol.
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