Should I file a consumer proposal?

DB asks

To get straight to the mess:

• 25 year old male
• single with no dependents
• $75,000 gross annual income
• employed in the finance industry (think CIRO/IIROC/MFDA)
• Equifax Score is 570 (Car finance company flagged a missed payment in Jan though in fact, no payments were missed)

Most of my take home pay goes to INTEREST payments and I feel there will never be progress with a consumer proposal

The numbers:

Unsecured Debt:

Royal Bank credit card: $7,500

Royal Bank line of credit: $15,000

Bank of Montreal credit card #1: $4,000

Bank of Montreal credit card #2: $12,000

Bank of Montreal line of credit: $25,000

American Express Platinum: ~$4,000

Canada Revenue Agency: ~$4800 ($430/mo)

Student Loan: ~$2000

Unsecured Grand total: $74,300

Secured Debt

$30,000 car financing @ 20% interest. “Asset” is well under equity wise. Planning on surrendering the vehicle.

Thoughts on proceeding with the consumer proposal?

Victor Fong, Licensed Insolvency Trustee replies

Hi there. There are some data points that are missing:

1. What’s the year, make and model of the vehicle that you’re surrendering and how many kilometers are on the odometer – i.e., what’s the fair market value of the vehicle? If you’re going to surrender the vehicle the LIT will need to estimate the shortfall. That shortfall can be included as a debt in your consumer proposal.
2. Your annual salary is $75,000 but what is your net monthly income? You didn’t indicate which province you’re residing in so your net pay will vary from one province to another due to different provincial tax rates and hence different amounts of tax withheld at source.
3. Why did you incur so much debt and over what time period did it accumulate? When a CP is submitted to your creditors, they’ll find the answer to this question by reviewing your transactions for at least the 12 month period preceding the date your CP was filed. It’s one thing to use credit facilities to pay for living expenses such as gas and groceries, it’s quite another to use credit facilities to go gambling or speculate in the financial markets. Your creditors might be understanding of the former reason but might not be so understanding of the latter reason. At the very least they’d request an increase in the monthly CP payment you’ve offered to them and at the very worst they might refuse your CP outright.
4. You owe CRA $4,300. Assuming this is for personal income tax, does this figure include amounts owed up to 2023? If not, you need to file your T1 returns up to 2023 before filing your CP.
5. You owe $2,000 on a student loan – is this a government student loan or is it loan from a bank? If it’s a government student loan how long have you been out of school? If you haven’t been out of school for at least 7 years, that $2,000 loan will not be discharged when you complete your CP.
6. You didn’t indicate whether you own any physical assets such as real estate or financial assets such as RRSPs, TFSAs, stocks and other financial investments.

Thoughts on proceeding with the consumer proposal?

How much you’ll be expected to pay in order for your creditors to accept your CP will depend on your answers to the points I listed above.

Employed in the finance industry (Think CIRO/IIROC/MFDA)

If you require a license or designation to perform your job, then you need to contact your regulator and ask them directly what are the consequences of you filing a consumer proposal.

DB responds

1. 2016 Chrysler. 112K kms, current fair market value in the current condition would be roughly in the 15K-19k range.
2. Alberta – so about $4100 net.
3. The out of hand spending started during COVID when I briefly lost my job, and kept going on with the habit afterwards. It is mostly gas/food/weekend expenses/subscriptions/etc.
4. Correct, up to 2023 included.
5. Student loan should be very manageable and isn’t a concern if it’s not in the proposal plan.
6. No assets in self-directed accounts at the time. Only in DPSP/Employer RRSP. Roughly about ~$20k.

Victor Fong, Licensed Insolvency Trustee replies

2016 Chrysler. 112K kms, current fair market value in the current condition would be roughly in the 15K-19k range.

Assuming your valuation is correct, you’ll need to add another $15,000 in unsecured debt to your total of $74,300 (for a total of $89,300) once the car loan company liquidates your vehicle.

No assets in self-directed accounts at the time. Only in DPSP/Employer RRSP. Roughly about ~$20k.

Registered retirement plans are creditor proof so this won’t be an issue.

Whether you should file a consumer proposal or not will depend on what your regulator tells you when you inform them that you’re considering filing one.

It’ll also depend on your cash flow – you didn’t indicate what your living expenses were. For example, if you’re living at home with your parents and not paying rent, would it be possible for you to hunker down and pay off your debts without having to resort to filing a consumer proposal?

On the other hand, if you have living expenses and there’s simply not enough money left over to even service your minimum payments, then a consumer proposal might be the right solution for you.