What is a Consumer Proposal?
A consumer proposal is an offer made by a debtor to his or her creditors to modify his or her payments. For example, you may propose that you will pay a lower amount each month, but over a longer period of time. Or you may propose that your creditors accept being paid a percentage of what you owe.
How does a Consumer Proposal Benefit You?
Your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing property or garnishing wages) unless the proposal is withdrawn, rejected or annulled or until the administrator is discharged where the proposal was not fully performed (except for debts which would not be released in a bankruptcy by an order of discharge, for example, child support).
Who Can Make a Consumer Proposal?
Any natural person who is insolvent, including a bankrupt, whose debts are less than $250,000, excluding a mortgage on your principle residence, can make a consumer proposal. If the debts are more than $250,000, the proposal will be made under Division I of Part III of the Bankruptcy and Insolvency Act
It is possible to make a joint consumer proposal. Two or more consumer proposals may be joined where they could reasonably be dealt with together because of the financial relationship of the consumer debtors involved.
How Does Someone Make a Consumer Proposal? What is the Process?
The procedure begins when you seek the help of an administrator who is a trustee in bankruptcy. He or she will ask you about your financial situation, assess it and give you advice about what kind of proposal may be best for you and your creditors. The administrator will ask you to sign forms which will then be filed with the government - called the Official Receiver
What Happens After a Proposal is Filed With the Official Receiver?
Within 10 days after filing your proposal with the Official Receiver, the administrator is required to send the Official Receiver a report. The report contains the administrators opinion about whether the proposal is fair and reasonable and whether he or she believes you will be able to perform it. Is also contains a list of your assets and debts, and a list of your creditors.
At the same time, the administrator must send each of your creditors a copy of your proposal and a copy of the report on the proposal. The administrator will also provide information about calling a meeting of creditors.
How Does a Proposal Get Accepted?
Your creditors will have up to 45 days to consider your proposal. A creditor may send a voting letter to the administrator accepting or rejecting the proposal. If creditors do not respond, they will be considered to have accepted the proposal. If a sufficient number of creditors accept the proposal, then it will become binding on you and your creditors, and you will have renegotiated/restructured your debts
What Happens if the Proposal is Rejected?
If the proposal is rejected, you will no longer be protected by the Bankruptcy and Insolvency Act. The administrator will, within 5 days, notify you, all your creditors and the Official Receiver of this fact. Your creditors will now be able to take legal steps to recover their debts from you.
If your proposal is rejected, you may consider filing bankruptcy.
What if My Proposal is Accepted, and I Fully Meet the Terms?
When the proposal is fully performed, the administrator must give a certificate of full performance to you and the Official Receiver and you will be relieved of the debts that were in the proposal.
What if I Stop Making Payments and Default on the Performance of the Proposal?
If you fail to keep the terms of your proposal, it may be annulled. If you were insolvent prior to making the proposal, you return to the same situation and your creditors would have a claim against you for the amount owed to them before the proposal, minus any amount you paid to them during the proposal. If you were bankrupt when the proposal was made and the court subsequently annuls your proposal, you will be considered bankrupt on the date of annulment.
Does it Cost Anything to Make a Proposal?
Yes. Fees to perform a consumer proposal are a percentage of the amount distributed to your creditors. For example, if you offered your creditors monthly payments of $300 for 3 years to settle your debts, the $300 monthly payment would include the administrators fees, which are approximately 20%. This creates a win win situation. If your creditors accept your proposal, they receive more money than they would in a bankruptcy. You receive a monthly payment you can handle, and the administrator earns a payment for as long as your proposal continues.