What is a Consumer Proposal?
In Canada, consumer proposals are growing in popularity as an alternative to personal bankruptcy. A consumer proposal is a legal process administered under the Bankruptcy and Insolvency Act. It allows you to make a negotiated settlement to pay all or a portion of your unsecured debts over a maximum of five years. The filing of a consumer proposal provides you with immediate protection against further action from unsecured creditors, including the Canada Revenue Agency for income tax debt or goods and services tax debt. Telephone calls, collection or legal action, and wage garnishments stop. Bank account seizures and unemcumbered asset seizures will be terminated immediately.
If you owe between $1,000 and $250,000, you may file a consumer proposal. The $250,000 maximum threshold excludes the secured debts owing on your principal residence. If you owe more than $250,000 you may want to consider filing a Division I Proposal.
A consumer proposal must provide a “greater financial recovery” for your unsecured creditors when compared to the “financial recovery” the unsecured creditors receive in a personal bankruptcy. The “greater financial recovery” offered to creditors in a consumer proposal may include one or more of the following:
- a one-time lump sum payment
- distributing payments to your unsecured creditors more frequently than in a bankruptcy
- reduced administration fees
- paying more into the consumer proposal on a monthly basis or for a longer period of time than would be required in a personal bankruptcy
A consumer proposal must be made through a federally regulated Licensed Insolvency Trustee who is known as the Proposal Administrator. The Proposal Administrator will file your consumer proposal and send notice to your unsecured creditors who respond with a voting letter to either accept or reject your consumer proposal. If the unsecured creditors vote to accept your consumer proposal by a simple majority (50% or more) and the court approves it, your consumer proposal becomes a binding legal contract that applies to all your unsecured creditors, even if some of your unsecured creditors voted to reject your consumer proposal or did not vote at all.
If the unsecured creditors vote to reject your consumer proposal, then you must explore other options to resolve your unsecured debts.
Consumer proposals are most often accepted by the unsecured creditors, as the unsecured creditors know that they will receive a “greater financial recovery” from your consumer proposal than the “financial recovery” they will receive from a personal bankruptcy.
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