WHAT IS A CONSUMER PROPOSAL?
Is a Consumer Proposal Better Then Bankruptcy
A proposal is simply an agreement between a person and his creditors whereby the person pays only a portion of his debts (say one-half), thus avoiding bankruptcy.
A proposal is made to the creditors through a Trustee in Bankruptcy. It does not mean you are bankrupt.
If the creditors vote in favour of the proposal, and the court approves it, then the proposal is a binding contract which all creditors must accept even the creditors who did not vote for the proposal.
Proposals are a better deal for the creditors than bankruptcy and in the vast majority of cases are accepted!
Consider a Consumer Proposal Before Undertaking Credit Counselling Repayment Programs
A Consumer Proposal is a means to negotiate with your creditors for the reduction of you debts and/or extension of time for payment of their debts. The payment schedule that is created in consultation with a your advisor is based on your income, living expenses and family creditors. It prevents your creditors from taking legal actions to seize assets or garnishee wages.
How Proposals are Filed
Under the Bankruptcy and Insolvency Act, a trustee or an administrator files a Proposal or an arrangement between you and your creditors to have you
Pay off only a portion of your debts
Extend the time you have to pay off the debt
Propose some combination of both.
To be acceptable, your creditors must be better off under a Proposal than if you go bankrupt.
- Consumer Proposals are better than Bankruptcy:
- When the debtor desires a quick resolution and is prepared to pay a premium to achieve that result
- When a discharge is likely to be contentious or a substantial condition is likely to be imposed
- When the debtor wishes to avoid bankruptcy altogether
- When the debtor wishes to continue in business and will be prevented from so doing if obliged to disclose that he is a bankrupt when dealing with third parties
- When professional accreditation may be lost or put at risk by a bankruptcy
- When a bankruptcy will result in a secured creditor acting on its security
- When the debtor wishes to retain some key asset (e.g. a home, heirloom, secret process or impending inheritance)
- When the debtor has previously been bankrupt.
Proposals May Be Better
Than Credit counselling or Bankruptcy.
Proposals are almost always accepted since the creditors will certainly get more than if the debtor goes bankrupt.
A Consumer Proposal is available to debtors owing less than $250,000, excluding a mortgage on the principal residence
Things to know about a personal proposal
Generally, a personal proposal is better than credit counselling arrangements
The debtor is not automatically bankrupt if the consumer proposal is not accepted
The proposal and the payments cannot be for a term of more than 5 years
Stay of all proceedings against the debtor
All creditor collection efforts, including garnishees, must stop when a proposal is accepted
Debtor is required to take two counselling sessions
Can only be filed through a trustee in bankruptcy or an administrator of consumer proposals
The creditors must be better off under a Proposal than under a bankruptcy
Administrator must file a report to the creditors on the affairs of the person and the causes of financial difficulty