Don't Trust ChatGPT For Advice About Consumer Proposals

This time, I asked ChatGPT this question: “How fast can I get out of debt with a Consumer Proposal?” Below I’ve provided the answer, with my comments on where ChatGPT gets it right, and where it gets it wrong.

ChatGPT's response:

The timeline for getting out of debt with a Consumer Proposal can vary based on several factors, including the terms of the proposal, your financial situation, and your ability to make the required payments [This is correct. How long it takes to get out of debt via a Consumer Proposal is very much dependent on your unique situation]. Here are some key considerations that can affect the timeline:

1. Proposal Terms: The length of a Consumer Proposal typically ranges from 3 to 5 years, although in some cases, it could be shorter or longer. The terms of the proposal are negotiated between you, your licensed insolvency trustee (LIT), and your creditors. [A Consumer Proposal can legally last up to 5 years, though it can last as little as one day if you are able to offer a ‘lump sum’ and can pay it immediately after the proposal is approved (note: it typically takes at least 60 days from the time you file the proposal to get approval)]. The duration of the proposal will impact how long it takes to complete the repayment plan.
2. Payment Amount: The monthly payments you make under the Consumer Proposal will depend on your income, expenses, and the total amount of debt you owe. [This is partially correct, but misses two important points:
   1. Your assets will also impact the amount you have to pay. For example, if you have significant equity in your home, that will have to be factored in to the amount you offer your creditors.
   2. The amount you have to pay is ultimately determined by your creditors. The LIT will help you come up with a reasonable offer based on the above factors, but your creditors can vote against your proposal. Sometimes this means a negotiation with the creditors (facilitated by the LIT) occurs to determine the amount you'll have to pay.]

If you can afford to make higher monthly payments, you may be able to complete the proposal sooner. [This lacks clarity – it seems to indicate that the higher your proposed monthly payments are, the shorter timeline you may be able to offer. But this isn’t usually the case – generally speaking, if you’re offering less than full payment of the debt, your creditors will want to see you pay as much as you can. So if you can afford to pay, for example, $500 per month, they will usually want to see you do this for the whole allowable 5-year period. That said, I believe this comment is actually referring to a situation where your creditors have agreed to a certain monthly payment amount over a specified number of months, but your situation improves and you are able to pay a higher amount each month to essentially pre-pay the proposal and complete it sooner.]

3. Creditor Acceptance: For a Consumer Proposal to be accepted, it must be approved by the majority of your creditors (in terms of both the number of creditors and the amount of debt they hold). [This isn’t quite correct. Generally speaking, the majority of your creditors need to be onside, but the approval rules are much more complicated. For example, when it comes to a Consumer Proposal, you need a majority in terms of the value of the debt, but not in terms the number of creditors. And this is only the case if a meeting of creditors is required. In some unusual cases, the majority of creditors may vote against the proposal, but if they don’t request a meeting of creditors (or the government doesn’t otherwise require one) the proposal is deemed to have been approved.] The time it takes for creditors to accept the proposal can vary, and negotiations may be required to reach an agreement. [This is true, but overly vague. There is a specified time period for creditors to vote on a Consumer Proposal (45 days), but sometimes it takes longer to obtain an agreement if a meeting of creditors, which happens after the 45-day period, is required.]
4. Completing Payments: Once your Consumer Proposal is accepted, you will need to make regular monthly payments as outlined in the proposal. If you consistently make these payments and meet the terms of the proposal, you will eventually complete the repayment plan. [This is usually correct, but a bit misleading. Not all proposals require regular monthly payments – there can be lump-sum proposals and other creative terms are possible (such as: I’ll list my house for sale and you’ll get paid x% of the equity in my house once it sells). In any event, once you complete the terms of the proposal, generally speaking it will be over, even if you pay it earlier than planned.]
5. Financial Changes: If your financial situation improves during the term of the Consumer Proposal (e.g., you receive a salary increase or windfall), you may have the option to pay off the remaining balance of the proposal earlier than originally planned. [Agreed, though this is repetition of points made above].
6. Trustee's Role: Your licensed insolvency trustee will play a crucial role in facilitating the Consumer Proposal process, including negotiating with creditors, collecting and distributing payments, and ensuring that you fulfill your obligations under the proposal. [This is correct, though I’m not sure what it has to do with the question. Perhaps it is insinuating that if you don’t comply with requirements of the LIT, you won’t be able to complete your proposal. This is true, to the extent those requirements are part of the proposal terms or required by the insolvency regulations (for example, the regulations say you must complete two financial counselling sessions as part of a Consumer Proposal)].

It's important to note that while a Consumer Proposal can help you manage and reduce your debt burden, it may not result in an immediate elimination of all your debts. The proposal provides a structured way to repay a portion of your debts over time while providing you with legal protection from creditors. [I agree with this comment]

If you're considering a Consumer Proposal, it's advisable to consult with a licensed insolvency trustee who can assess your financial situation, explain the potential timeline, and provide guidance on whether a Consumer Proposal is the right solution for your specific circumstances. Keep in mind that every individual's financial situation is unique, and the timeline for getting out of debt will vary accordingly. [Hear, hear! I would add that the only professionals licensed to provide Consumer Proposal services are Licensed Insolvency Trustees, so caution should be used when considering advice from others such as debt consultants who may not have the training or experience to give better answers than ChatGPT, and may charge you additional, unnecessary fees].

It's understandable that people want to do their research about Consumer Proposals before reaching out to a Licensed Insolvency Trustee. We recommend if you're looking to the internet for information that you start with the Office of the Superintendent of Bankruptcy's website, or websites belonging to a Licensed Insolvency Trustee, as they will have the most reliable information. However, the best way to get information about how quickly you can deal with your debt through a Consumer Proposal is to schedule a free consultation with a Licensed Insolvency Trustee that can gather information from you so that the answer can be discussed within the context of your unique situation. 

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming debt, and where appropriate we support them through an insolvency filing and help them get set up for future success. If you'd like some advice, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.