A consumer proposal is a legal process administered under the Bankruptcy and Insolvency Act that allows you to make a negotiated settlement to pay all or a portion of your unsecured debts over a period of time that is not to exceed five (5) years. In Canada, consumer proposals are growing in popularity as an alternative to bankruptcy.
The filing of a consumer proposal provides you with immediate protection against any further action by your unsecured creditors, which includes telephone calls, collection or legal action, and it immediately stops wage garnishments.
You may file a consumer proposal if you owe between $1,000 and $250,000. 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 a Division I Proposal.
A consumer proposal must provide a "greater financial benefit" to the unsecured creditors than the unsecured creditors would otherwise receive in a bankruptcy.
The "greater financial benefit" offered in a consumer proposal may be in the form of a one-time lump sum payment, distributing payments to the creditors more frequently than in a bankruptcy, reduced administration fees, or paying more into the consumer proposal, either on a monthly basis or for a longer period of time than you would be required to pay in a bankruptcy.
A consumer proposal must be made through a federally licensed and regulated Trustee in Bankruptcy 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 and the court approves it, your consumer proposal becomes a binding legal contract that must be accepted by all the unsecured creditors, even if some of the 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 it provides the unsecured creditors with a "greater financial benefit" or greater recovery on the unsecured debt than a bankruptcy.