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Although still relatively unknown, consumer proposals are a solution that I often recommend to people battling debt problems. Once I explain the advantages and the steps involved, many are relieved to know that there is an effective alternative to bankruptcy.

To help people better understand consumer proposals, I start by explaining each step of the process.

Step 1: Evaluation by a Licensed Insolvency Trustee

As stipulated in the Bankruptcy and Insolvency Act (BIA), only a Licensed Insolvency Trustee (LIT) can administer a consumer proposal. Therefore, the first step is to meet an LIT.

During the initial consultation, the LIT will establish your real budget and will list all your debts. The LIT will also take the time to listen and understand all the challenges that come with your financial situation and get a good grasp of your goals. The LIT will then suggest various solutions to solve your debt problem.

If a consumer proposal turns out to be the best solution for you, the LIT will ensure that you meet all the criteria. To be eligible, you must:

  • Owe an amount between $1,000 and $250,000, not including the mortgage on your principal residence (up to $500,000 for couples);
  • Reside or own property in Canada;
  • Meet one of the following conditions:
    • Be unable to repay your debts by the agreed upon deadlines;
    • No longer make payments towards debt and household bills (electricity, credit card bills, etc.;
    • Hold debts (liabilities), the combined value of which is more than all goods (assets).

Step 2: Drafting the consumer proposal

In this step, the LIT drafts the proposal by specifying the duration of the contract and the monthly payment amount. The LIT must ensure that the payment amount falls within your budget, while also ensuring that the offer is satisfactory enough for the creditors to accept the proposal.

Step 3: Filing the consumer proposal

Once the consumer proposal is drafted and signed, the LIT will file it with the Office of the Superintendent of Bankruptcy (OSB). Starting now, the consumer proposal puts a stop to all collection action towards you, including wage garnishment. You also stop paying the collectors listed in the proposal.

You must, however, continue to pay your secured creditors if you wish to keep certain assets. “Secured” debts are generally debts from creditors that hold a lien on goods they have financed. Mortgages and car loans are perfect examples of secured debts that cannot be included in a consumer proposal.

To conclude this step, the LIT sends the consumer proposal to all creditors involved. The document contains the payment offer and a report on your personal situation that explains the reasons for your debt. The LIT will also attach a list of your assets, debts, and a copy of your budget. All of these need to draw a clear portrait of your situation for your creditors, since they must either approve or reject your offer in the next step.

Step 4: Creditors vote

Once a proposal is received, creditors must declare that they either accept or reject it. If there are any objections, they must request a meeting of creditors, where they will vote on the proposal. The request must be made within 45 days of the filing of the proposal.

Meeting of creditors

For an LIT to hold a meeting of creditors, the proportion of creditors making the request must represent 25% of the value of the claims or more. Here are two examples.

In the first example, creditors requesting a meeting represent less than 25% of the total value of debts owed. This is not enough. The proposal will be deemed to have been accepted once the 45-day delay has passed.

CreditorsMeeting of creditors requestedValue of claimsPercentage
Creditor #1Yes$1,00010%
Creditor #2Yes$1,00010%
Creditor #3No$8,00080%

 

In the next example, the creditors requesting a meeting represent more than 25% of the value of the claims. Their request will be accepted and the LIT will call a meeting of creditors.

CreditorsMeeting of creditors requestedValue of claimsPercentage
Creditor #1Yes$2,00020%
Creditor #2Yes$2,00020%
Creditor #3No$6,00060%

 

If during the meeting the majority of the creditors vote in favour (50% + 1, weighted according to the value of the claims), the consumer proposal is accepted.

If, on the other hand, the proposal is rejected, it is possible to make some changes and resubmit it to the creditors. You can also look at other possible solutions with the help of your LIT. The rejection of your proposal does not automatically mean bankruptcy will follow.

Step 5: Executing the consumer proposal

Once the consumer proposal is accepted, you will be required to fulfill your portion of the agreement. You will be required to make the monthly payment directly to your LIT for the agreed upon duration, up to a maximum of 60 months. If anything should happen that would prevent you from making a payment, you must communicate this as soon as possible to your LIT. If you miss three consecutive payments, your proposal will be deemed annulled.

As in step 3, you must also continue making payments for debts not included in the consumer proposal. In spite of everything, you will quickly feel the burden of your debt lighten as you take back control of your finances. Your situation will settle and creditors will stop bothering you. From the beginning of this step onward, you will feel much better.

Step 6: Freedom from debt

Freedom from your debts is the last step of the consumer proposal. Once all the payments are made and the conditions met, you will be free of all debts included in the proposal. Your LIT will send you a certificate of compliance stating that you are free of your debts, and you will be able to enjoy a fresh start.

Consumer proposals becoming more popular

The statistics are there. More Canadians are choosing consumer proposals to free themselves of their debt. In six years, the percentage gap between people choosing bankruptcy over a consumer proposal has dropped considerably. As shown in the following chart, the gap has narrowed from 53.8 percentage points in 2009 to 11.2 in 2014. In Ontario and Alberta, more people choose to settle their debts by way of a consumer proposal instead of filing for bankruptcy in 2014.

At the time of writing this article, the OSB had not yet released the 2015 annual statistics, but all evidence shows that the trend continues.

If you are facing debt problems and are considering a consumer proposal, let Ginsberg Gingras licensed insolvency trustees help you. We will draft an offer that fits your budget and satisfies your creditors. The initial consultation is free and discretion is assured.

*To better reflect the professional designation of insolvency professionals, the term “trustee in bankruptcy” has been replaced with “licensed insolvency trustee”.

Stephan V. Moyneur

CIRP, Licensed Insolvency Trustee

Official Office: St-Jérôme
Phone: 450-990-1277

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