Consumer Proposals

If you live in the (519) area code call 310John and we can help you sort through your debt issues.

What is a Consumer Proposal?
A Consumer Proposal is a highly effective tool that Trustees in Bankruptcy use as an alternative to bankruptcy. It is a formal legal proceeding, which is filed by an insolvent person. In essence, it is an offer from a person who is experiencing financial problems to that person’s creditors but can only be made through a licensed Trustee in Bankruptcy.

The Bankruptcy & Insolvency Act states that a Consumer Proposal must be made through an Administrator. To be an Administrator, one must be a Trustee in Bankruptcy. The Administrator who must be a Bankruptcy Trustee is responsible for negotiating a settlement with the creditors, and once the offer is accepted, the Administrator who must be a Bankruptcy Trustee, will be responsible for the complete administration of the Consumer Proposal.

The History of Consumer Proposals
Consumer Proposals were introduced into law in 1992. Prior to that, the option to Bankruptcy was Informal Proposals; now know as debt management programs. Since these Informal Proposals generally didn't work well unless all creditors agreed, it was determined that Canadians needed a better alternative.

What are the benefits of a Consumer Proposal?
Consumers Proposals have a Stay of Proceedings, which prevents creditors from calling you, stops garnishment of wages and allows for the Trustee in Bankruptcy to negotiate a reduction of you debt and a repayment plan.

Do I qualify to file a Consumer Proposal?

In order to file a Consumer Proposal you must meet the following qualifications:

You must have between $1,000.00 and $250,000.00 in debt not including the mortgage(s) on your principle residence;
You must be insolvent, i.e. your debts are greater than the value of your assets; and
You must have resided or carried on business in Canada.

How does the Consumer Proposal process work?
A person considering a Consumer Proposal must meet with and seek the assistance of a Trustee in Bankruptcy who will perform an assessment/ review of the person’s situation. If you decide a Consumer Proposal is right for you, then the Trustee/Administrator will prepare the following documents:

A Consumer Proposal, which is the offer from yourself to your creditors setting out what you are offering to pay them;
A document called a Statement of Affairs which is a personal financial statement listing your assets and debts; or
A budget form showing what you can afford to pay.

After you have signed these documents, the Trustee/Administrator will file the documents with the Superintendent of Bankruptcy and a court file will be issued and the administrator will send notice to the creditors, within 10 days of the proposal being filed. The creditor calls, legal proceedings and garnishments with then stop.

How does a Consumer Proposal get accepted?
After your proposal has been filed, the Trustee/Administrator will send it to the creditors they have 45 days to vote on the proposal. If after 45 days, a majority by dollar value vote in favour of the proposal, the proposal is deemed to be approved.

What if the creditors vote against my proposal?
A vote against a Consumer Proposal does not mean that the proposal will fail. Unlike Informal Proposals or Division One Proposals, if a majority of creditors by dollar value vote in favour, the proposal is deemed to be accepted. Therefore the proposal will be approved and those creditors who voted against the proposal will be forced to take the proposal.

Meeting of Creditors If the Proposal is deemed accepted and there is no request for a meeting of creditors then no meeting will be called. In the majority of cases, there is no requirement for a meeting of creditors. However, if 25% of the creditors request a meeting by sending a letter to the Trustee/ Administrator, then a meeting must be called. The meeting will be held within 21 days after the expiry of the 45 days of the proposal being filed. The vote for acceptance or rejection of the proposal will be held at that meeting.

The benefit of the meeting being another 21 days later
If it looks like the proposal will not be accepted, the meeting of creditors allows us the opportunity to further negotiate with creditors and attempt to get them onside with the proposal. Remember, we only need to get 51% of the creditors onside, so during this time we will talk with your creditors and attempt to get that required majority.

Why is a meeting of creditors required?
There are generally two main reasons that creditors would want us to call a meeting. They are:

Creditors want an amendment or change to the Proposal; or
Creditors do not want the Proposal and therefore we must call a meeting of creditors to allow for the votes against to be counted.

Should I worry if a meeting of creditors is called?
No! Meetings of creditors are often called. We view this as an additional opportunity to speak to your creditors and get them onside. Many times creditors will change their votes after further discussions or after further information is provided.

Who will attend the meeting of creditors?
Although it is called a creditors meeting, creditor's very seldom, physically attend the meeting. Most of the time creditors will participate at a meeting of creditors by sending a voting letter to the Administrator/ Trustee and the Trustee will record the vote at the meeting based on the voting letter.

At Adamson & Associates Inc. we are proud of our track record of getting Consumer Proposals accepted. To be successful with Proposals, we must treat each one as unique. If we don’t our success rate will drop. You should be sceptical about anyone who advertises or makes a claim that they can reduce your debt by a certain percentage. The fact is that creditors will do an analysis to determine if they should accept or decline your proposal. There is no set amount that applies to each situation. If the professional you choose doesn't perform the calculations in a similar manner to that of your creditors, your proposal will probably fail. It is for these reasons that we treat each proposal as unique. When you have done this work for years, you get to know the creditors and each of their individual requirements. If I don’t think a proposal will work for you, I will tell you.

Obligation once the Consumer Proposal has been accepted
Once a Consumer Proposal is accepted, the debtor who made the proposal must, comply with the terms of the proposal or the proposal will become annulled. For example, if we negotiate a settlement of your debts for a reduction of 60% and you are required to make payments of $300.00 per month for 3 years, and you didn’t make any payments after 3 months, we have no alternative but to advise the creditors that you are not complying with the terms of the proposal and your proposal will become annulled.

What is the effect of Deemed Annulment?
If a Consumer Proposal becomes deemed annulled, the rights of the creditors are revived. This means that the creditors can continue their collection activities, legal proceedings or garnishments against you. Once a proposal becomes deemed annulled most people usually file for bankruptcy, which provides them with relief from their creditors. However, I believe that the proposal must be fair to both the creditors and the person making the proposal. It is not to anyone’s benefit to have a proposal that becomes annulled part way through the process. I would much rather structure a proposal with a longer term and lower payments but that allows for the person making the proposal to be able to pay off the proposal early. This often allows for the person making the proposal to survive any unexpected financial changes, but still provides the ability to pay off the proposal earlier.

What happens if make all my proposal payments?
Once a debtor has complied with the terms in the proposal, then the proposal is fully performed. The Administrator will provide the debtor with a Certificate of Full Performance, which serves as a discharge. After this the debtor is completely released of any obligations to his or her creditors.

Will I lose my job for filing a Consumer Proposal?
In section 66.3 of the Bankruptcy & Insolvency Act it states that an employer may not dismiss an employee for making a consumer proposal. If you are bonded, handle cash or are a broker, a proposal may be a better alternative to bankruptcy.

Will I lose my Tax refunds? How much does it cost to file a proposal?
Unlike a bankruptcy, tax refunds are not property available for distribution to creditors in a proposal.

Can I do a Consumer Proposal if I owe money to Canada Revenue Agency?
Yes, you can do a proposal and include Canada Revenue Agency debt in your proposal. I often have people advise me that they were told they could not include Canada Revenue Agency debt in a proposal. This is not true. The fact is the Bankruptcy & Insolvency Act determines which debts survive bankruptcy and proposals. For more information about which debts survive, see Debts that Survive Bankruptcy.