What is a consumer proposal?
A consumer proposal is available for individuals who are insolvent and who have debts totalling under $250,000.00, outside of their residential mortgage indebtedness. A Division I Proposal is available for individuals who owe more than $250,000.00. Please contact us for more information regarding Division I Proposals.
A consumer proposal, if accepted by your creditors, is an agreement between you and your creditors, to settle your debts at an agreed amount in order to avoid having to go into bankruptcy. Consumer proposals offer your creditors various options, including a percentage payment on the dollar over a period of time, lump sum payment, or payment in full over time at no interest.
A consumer proposal is administered by an Administrator, who is a trustee in bankruptcy or other authorized person, who assists you in preparing your proposal and forwarding the proposal to your creditors. In order for the proposal to succeed, a majority (in dollar value) of your creditors must vote in favour of its acceptance. If the consumer proposal is accepted, the consumer proposal is binding on all your creditors. If a majority of the creditors vote against your consumer proposal, you may amend your consumer proposal at the meeting of creditors to try to negotiate a reasonable settlement. You should therefore attend your creditor’s meeting, if one is required. If your consumer proposal fails, you can either elect to file a bankruptcy assignment, or try to arrange an appropriate payment arrangement with your creditors directly. If a consumer proposal fails, it is not an option to attempt to file another consumer proposal.
The trustee must be able to recommend the acceptance of the consumer proposal to your creditors, and in order to do so, the consumer proposal must provide a better result than would result in a bankruptcy. If the consumer proposal is accepted by the majority of creditors, the debtor will be required to attend 2 credit counselling sessions, and upon full payment of the terms of the consumer proposal, a certificate of full performance will be issued.
Please note the following excerpt from the Bankruptcy and Insolvency Act:
“(a) where payments under a consumer proposal are to be made monthly or more frequently and the consumer debtor is in default to the extent of three months payments, or (b) where payments under a consumer proposal are to be made less frequently than monthly and the consumer debtor is in default for more than three months on any payment, the consumer proposal shall thereupon be deemed to be annulled unless the court has previously ordered otherwise or unless an amendment to the consumer proposal has previously been filed, and the administrator shall forthwith so inform the creditors and file a report thereof in the prescribed form with the official receiver.” If an annullment occurs, the debtor cannot file another consumer proposal, they must pay the creditors in full, or file an assignment in bankruptcy, or make independent arrangements with the creditors by other means. A consumer proposal is an attractive solution and may be a better option than bankruptcy for a number of different reasons, as follows:
- The debtor can retain assets that may be available to creditors in a bankruptcy;
- The debtor can continue to be a director of a corporation;
- It will not affect a debtor who is concerned about the risk of their professional accreditation, where in a bankruptcy there could be issues;
- A consumer proposal allows the debtor to have control over the payments offered and the time frame it is paid in, where in bankruptcy, it is set by the Superintendent of Bankruptcy Standards;
Please contact Alex Ng should you wish to explore this or other options that may be available to you.