The Consumer Proposal

A consumer proposal is a procedure pursuant to Division II, Part III of the Bankruptcy and Insolvency Act (BIA), often proves to be a simple and effective way for insolvent consumers to solve their financial problems because it allows them to keep their assets provided they pay an agreed upon amount to their creditors in final settlement of their debts.

Who can file a consumer proposal?

A debtor can file a consumer proposal if he/she is a natural person who is insolvent (or bankrupt) and whose total debts do not exceed $250,000, excluding any mortgage on their principal residence.

A consumer proposal can also be filed jointly in the case of two parties responsible for common debts, whenever such a procedure is in the best interests of both the debtors and the creditors concerned.

The administrator’s role

Trustees in bankruptcy serve as administrators of consumer proposals and in this capacity are required to investigate the debtor’s property and financial affairs in order to determine their financial situation and prepare an adequate proposal to send to their creditors.

This proposal is accompanied by a report from the administrator containing their findings as well as their opinion as to whether the proposal is viable and reasonably accurate.

Consumer proposals

A consumer proposal is an offer made by insolvent debtors to their creditors in order to settle the amounts owing. Such offers can be made in the form of a lump sum or a series of monthly payments over a period not exceeding 60 months after the date of the proposal filing.

In many cases, the consumer proposal will offer the creditors a percentage of the debtor’s total debts. For a consumer proposal to be worthwhile and effective for all concerned, it must be more advantageous for the creditors than bankruptcy, and also enable debtors to regain control over their financial situation.

A consumer proposal must be prepared in the prescribed form and include:

1. How the secured creditors are to be paid;
2. The proposed offer of payment to the ordinary creditors over a period of no more than five years;
3. How the administrator’s fees and expenses (as prescribed by the BIA) are to be paid;
4. A description of how the dividends (or proceeds) are to be distributed.

Accepting the proposal

Once a consumer proposal has been signed and filed, it needs to be sent to the creditors within 10 business days. After receiving the proposal and any related documents, the creditors are required to respond to the proposal.

Within 45 days of the proposal filing and after the creditors’ votes and proofs of claim have been received, the administrator has two options:

1. Not call a meeting of the creditors if the proposal is deemed to be accepted by the creditors;
2. Call a meeting of the creditors if at least 25% of the creditors so request.

Any creditors’ meeting must be held within 21 days of being called. At this meeting, the creditors with proven claims vote to accept or reject the proposal. A majority of votes expressed in dollar value of claims is needed to approve the proposal.

The creditors can request alterations to the proposal, and if the debtor agrees to comply with such changes, a modified proposal is then approved.

It is important to understand that consumer proposals are negotiated between the parties and should be mutually acceptable.

Rejecting the proposal

If the creditors’ meeting rejects the debtor’s proposal, he or she has to start from scratch again but is not automatically considered bankrupt.

Defaulting on the proposal

If the consumer proposal is accepted by the creditors, the debtor is obliged to honour and comply with its terms. All monies will then be remitted to the administering trustee who will then distribute these to the creditors.

The proposal is automatically annulled if the debtor falls three months behind in making payments. However, debtors can rectify the situation within 30 days of the annulment if they prove their good faith to the administrator, demonstrate their ability to comply with the proposal’s terms, and explain the reasons for the late payments. The proposal can then be reinstated if the creditors do not object.

Advantages of a consumer proposal

Here are a few advantages of a consumer proposal:

1. Debtors are protected against attempts by their creditors to seize their property or register liens against such property;
2. Avoids bankruptcy and is thus a way of allowing debtors to retain ownership and possession of their property;
3. Allows for quicker repayment of the proposal if the debtor’s financial situation improves, which also restores the debtor’s credit rating more quickly;
4. Achieves a final settlement of the consumer’s debts by combining them all into a series of single monthly payments without any incurring any interest or penalties.

Conclusion

A consumer proposal is potentially a very attractive option for consumer debtors to avoid bankruptcy and regain control over their finances. In fact, for all your questions about your financial problems, don’t hesitate to contact a Ginsberg Gingras trustee. Remember – bankruptcy is not your only solution!