What is a "consumer proposal?"
The concept behind a consumer proposal to creditors is to repay a portion (or all) of your debts in a prearranged and reasonable way; you may stretch your payments over a period of up to five years. It is an alternative to bankruptcy. A consumer proposal to creditors is a legally binding procedure that is administered for the courts by a licensed trustee in bankruptcy. Proposals to creditors are best suited to persons with debts in excess of $5,000 but not exceeding $250,000, who have the ability to repay a portion of their debt. A husband and wife filing a joint proposal would have a combined limit of $500,000.
If your debts are higher than $250,000, you cannot file a consumer proposal, but you still can file a Division 1 proposal under the Bankruptcy & Insolvency Act. The rules are somewhat more complicated, but a proposal is still possible.
How to proceed
The procedure starts in seeking out a trustee and they will tell you what kind of proposal might be best for you and your creditors. You will be required to sign the necessary forms that will be filed with the Official Receiver.
Is that all it takes to present a consumer proposal to creditors?
The next step in the process is up to your creditors. Under the Bankruptcy and Insolvency Act, your creditors will have up to 45 days to accept or reject your proposal. If a simple majority of 50 per cent plus one vote for your proposal then it is considered as accepted by ALL of your creditors. Fifteen days after that, if there are no objections, your proposal will be approved by the Court. From that date forward, both you and your creditors are locked into the terms of the consumer proposal. If 25 per cent or more of your creditors request to have a meeting one will be held on whether to accept the proposal. Most consumer proposals are accepted without a meeting of the creditors.
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What if my creditors vote "no" to consumer proposal?
If the proposal is rejected, you will no longer be protected by the Act and the situation reverts back to the debt status before you decided to file the proposal. (There are other alternatives and your trustee will help you negotiate with your creditors to help find an agreement that both you and the creditors find acceptable).
Payments
If you miss three payments your proposal will become null and void. Your creditors then can legally take the necessary steps to recover the balance of the debt owed to them.
Credit Rating
The fact that you have filed a Consumer Proposal will be noted in your credit record with the credit bureau. The record will be removed three years after the proposal has been fulfilled.
The advantages of a consumer proposal
The advantages of a consumer proposal are: - If accepted by a majority of your creditors (50% +1) it is deemed to be accepted by ALL of your creditors;
- Interest is frozen at the date you file the proposal;
- You can negotiate to repay only a portion of the debt you owe;
- Your creditors are "stayed" (restricted) from taking any legal action against you; and
- Wage garnishments (except for support and alimony) are immediately stopped
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Proposals
