Consumer Proposals

What is a Consumer Proposal?

A Consumer Proposal is a legal process which provides a debtor with an opportunity to modify his or her payments to creditors, by extending the time for payment or reducing the total amount to be paid, without ongoing interest.

Who can make a Consumer Proposal?

A Consumer Proposal can be made by a person who owes between $1,000 and $75,000, excluding mortgages on a personal residence. If the person's debts are more than $75,000, a person may still file a Proposal, but some different rules will apply. See Personal Proposals - Avoiding Bankruptcy for more details.

If an individual is currently in bankruptcy, and their financial circumstances have changed to the better, the person can file a Consumer Proposal. The bankruptcy will be annulled on acceptance of the Consumer Proposal by the creditors and approval by the Court.

A joint Consumer Proposal may be filed by two or more individuals, if the Consumer Proposal can be reasonably dealt with together because of the financial relationship of the debts involved (eg. Married couples, common-law partners).

What are the benefits of a Consumer Proposal?

A Consumer Proposal may be a better option than bankruptcy for a number of different reasons, including:

• An individual can retain assets that may be available to creditors in a bankruptcy;
• An individual can continue to be a Director of an incorporated company;
• An individual's professional accreditation may not be at risk, whereas in a bankruptcy, there may be issues;
• The Consumer Proposal remains on the individual's credit report for three years following completion of the terms, whereas bankruptcy is noted for a minimum of six years following a discharge; and
• Creditors receive more from a Consumer Proposal than they do from a bankruptcy and, for that reason, are more inclined to accept the arrangement to settle the debt.

What are the major steps in a Consumer Proposal?

Contact a Trustee

The first step in the process is to contact one of our professionals for a free, confidential, no-obligation consultation. This number will reach the Sands & Associates office that is closest to you: (604) 310-0911.

We will review your financial situation and assist you in preparing the Consumer Proposal. We will prepare the necessary documents to file the Consumer Proposal with the Office of the Superintendent of Bankruptcy.

Creditor Notification

The Trustee will notify all of the individual's creditors and provide them with a copy of the Consumer Proposal and other relevant financial information. They will also receive a Report of the Trustee, which comments on the individual's ability to meet the terms of the Consumer Proposal, and provides a comparison of realization to creditors in the Consumer Proposal versus a bankruptcy.

Voting

The creditors have up to 45 days to consider whether to accept or reject the Consumer Proposal. If creditors do not respond, the Consumer Proposal is deemed to be accepted. However, creditors have been taking a more active role in the Consumer Proposal process because the return to them is higher than a bankruptcy, and usually vote on the Consumer Proposal by letter.

To be accepted by creditors, there must be a simple majority in dollar value voting to accept the Consumer Proposal. Acceptance of the Consumer Proposal by those creditors who vote will be binding on the debtor and the remaining creditors who did not vote.

The creditors may request a meeting be held, although this is not a common occurrence. Any creditor who votes against the Consumer Proposal is deemed to be requesting a meeting be held, but in order to actually have a meeting, that creditor's claim must represent at least 25% in value of all proven claims filed at the end of the 45 day period.

When the Consumer Proposal is accepted by the creditors, it is deemed approved by the Court after 15 days have expired.

Counselling

An individual who files a Consumer Proposal is required to attend two counselling sessions. These sessions will assist the debtor in understanding causes of financial difficulty, as well as assisting the debtor in managing their future financial affairs.

Payments

On acceptance by the creditors and approval by the Court, the debtor will make the payments as set out in the Consumer Proposal document. If payments are required monthly, and a debtor misses any three payments, the Consumer Proposal is deemed to be in default. In the case where payments are not required on a monthly basis, the Consumer Proposal will be in default if more than three months goes by without the debtor making the required payment.

Completion

Once all payments under the Consumer Proposal are made, the Trustee will issue a Certificate attesting to the completion of the Consumer Proposal.

What happens if the Consumer Proposal is rejected?

If the creditors do not accept the Consumer Proposal, the debtor will no longer be protected by the Bankruptcy and Insolvency Act and the creditors will be able to take steps to recover the outstanding amounts. The individual may have to consider taking advantage of a bankruptcy in order to deal with their outstanding debts, but he or she should discuss this with their Trustee.

What happens if my circumstances change and I can't make my payments?

If the Consumer Proposal requires an individual to make monthly payments, and three of the monthly payments have been missed, the Consumer Proposal will be in default.

If the Consumer Proposal requires payments less frequently than monthly and the individual misses any payment for more than three months, the Consumer proposal will be in default.

Once default occurs, the creditors will again be able to resume collection proceedings.

Will my creditors stop harassing me?

Yes, they will! Once a Consumer Proposal is filed, all actions against a debtor cease to have affect. This will also apply to garnishees against wages.

What happens to my assets?

Assets, such as equity in a car or home, jewellery, RRSPs, or savings plans, can be retained by the individual. An individual may, however, voluntarily surrender an asset, such as a RRSP, so that the proceeds can form part of the Consumer Proposal.

Can I keep making my payments on my car or mortgage?

If a creditor has a lien on any of your assets (car loan, or lien against furniture), the creditor is not usually bound by the Consumer Proposal. An individual may wish to surrender the asset to the creditor, or make arrangements to continue with the payments so that the asset can be retained.

If an individual has a mortgage on their residence, they can continue making the mortgage payments.

What debts are not included in a Consumer Proposal?

There are some debts that are not extinguished by the filing of a Consumer Proposal. These debts include Court fines, any Court award for damages associated with bodily harm or sexual assault, arrears of spousal or child support, debts incurred through fraud or misrepresentation, and student loans incurred within 10 years of filing the Consumer Proposal.

Some of these creditors are entitled to file a claim in the Consumer Proposal (spousal or child support, EI overpayments, student loans), which will result in funds being paid to them. The debtor will be responsible for any balances due to them after completion of the Consumer Proposal, plus interest. However, recent Court cases require that EI (represented by Human Resources Development Canada) needs to apply to Court for an Order that the EI overpayment was incurred by fraudulent misrepresentation before they can collect the balance.

Can income tax and GST debt be included in a Consumer Proposal?

If a debtor owes Canada Revenue Agency (formerly Canada Customs & Revenue Agency and Revenue Canada) for outstanding personal income taxes or GST, these debts can be included in a Consumer Proposal.

Canada Revenue Agency ("CRA") is acceptable to receiving less than full payment through a Consumer Proposal, provided the debtor:

• has filed all of the prior income tax and GST returns,
• will file future income tax and GST returns on time and make payment of any outstanding balances at time of filing, and
• in the case of self-employed individuals, make arrangements for payment of instalments of future taxes.

What if my debts are also in someone else's name?

The filing of a Consumer Proposal will not cancel the liability of anyone who has guaranteed or co-signed any debt. These co-borrowers or guarantors will still be responsible for the debts, less any payments the creditor receives from the Consumer Proposal.

Can I keep my credit cards?

An individual is not required to turn in their credit cards, however, once the creditor is advised of the Consumer Proposal, it may suspend or cancel credit privileges.

Who pays the Trustee to administer the Consumer Proposal?

The Trustee's fees are based on a tariff set by the Bankruptcy and Insolvency Act, and the fees are deducted from the payments made by the debtor, before any funds are issued to the creditors.

If you have any questions, please do not hesitate to contact any of our offices.