If you’re struggling with debt and need a way out, you may be wondering what options are available to you. In Canada, one option is to file a consumer proposal. This legal process is designed to help insolvent individuals compromise their debts with their creditors and avoid the stigma of bankruptcy.
Under the Bankruptcy and Insolvency Act (BIA), Division II of Part III permits insolvent individuals to file a consumer proposal with an administrator to compromise their debts. The 1992 amendments to the Act distinguish between commercial and consumer proposals, allowing insolvent natural persons to make a proposal and avoid the stigma of bankruptcy.
If you have more assets than liabilities, however, you won’t qualify for a consumer proposal. The Act defines a “consumer debtor” as an insolvent natural person whose aggregate debts do not exceed $250,000, excluding debts secured by the debtor’s principal residence. While the type of debts is not defined, a debtor with business debts may still qualify as a consumer debtor.
One of the key benefits of a consumer proposal is that it operates more efficiently and less expensively than other options. For example, there may not be a meeting of creditors to consider the proposal, unless the creditors or official receiver requests one. If there is no request for a meeting, the proposal is deemed to have been accepted by the creditors 45 days following the filing of the consumer proposal. Additionally, the consumer proposal is deemed approved by the court 15 days after the deemed acceptance by the creditors.
An administrator is a licensed insolvency trustee or a person appointed or designated by the Superintendent of Bankruptcy to administer consumer proposals. The introduction of an administrator gives the Department of Innovation, Science and Economic Development Canada the flexibility to enlist credit counselling agencies and others as administrators to assist in the administration, and it also gives the Department the opportunity to participate in the marketplace with the private sector.
Once the consumer proposal has been filed, there is a stay of proceedings against all unsecured creditors, similar to the stay of proceedings under a Division I proposal. The rights of secured creditors, however, are not stayed unless there is a court order. Unlike a bankruptcy, property remains in the debtor’s name unless the debtor intends to transfer property to the trustee for realization or as security for payments.
In addition to investigating the consumer debtor’s property and financial affairs, the administrator is required to send to creditors a copy of the proposal, a report on his or her investigations, a proof of claim, and a statement to the effect that no meeting will be called unless one is requested. If no one opposes the proposal or a meeting of creditors is not required, the consumer proposal is deemed to be accepted 45 days after its filing.
The terms of a consumer proposal are usually linked to the liquidation of the debtor’s present assets or attaching the debtor’s surplus income over time. Some consumer proposals may include clauses allowing the debtor to borrow money and pay the administrator a “discounted amount” in full satisfaction of the debtor’s commitment. The debtor may end up paying more money in finder’s fees and interest than if they were to perform the terms of the proposal.
If you default in the performance of any provision, or if the court determines that you were not eligible when the proposal was filed, the proposal cannot continue without injustice or undue delay, or the court approval was obtained by fraud, the consumer proposal may be annulled on several grounds upon application to the court. If you default in payment of more than three months in cases where there are monthly payments due, or other frequent payments, the consumer proposal will be deemed to be annulled. Subsequent payments will not reinstate the proposal.
In conclusion, a consumer proposal is a viable option for those who are struggling with debt but wish to avoid bankruptcy, as it allows the debtor to negotiate with creditors and come up with a reasonable payment plan without having to give up their assets or income. While there are eligibility requirements and potential risks involved, working with a licensed insolvency trustee or administrator can help ensure the process is smooth and successful.
