Consumer Proposal vs Bankruptcy
What is a consumer proposal?
Like a bankruptcy, a consumer proposal is a legal procedure that stops creditors from taking legal action against a debtor. It does so by way of an agreement between a debtor and his creditors whereby the former pays only a portion of his debts (e.g. agrees to pay lower amounts each month, but over a longer period of time), thus avoiding bankruptcy. The proposal is made to the creditors through a trustee in bankruptcy. If the creditors vote in favour of the proposal, then the proposal is a binding contract, and all the creditors must accept it — even those who did not vote for it. This option is available to any insolvent person whose debts are less than $75,000, excluding the money owed on a home mortgage.
The consumer-proposal process starts with the debtor seeking the help of an administrator —a trustee in bankruptcy or a person appointed by the Office of the Superintendent of Bankruptcy (OSB) —who then evaluates his financial situation and offers advice about what kind of proposal may be best for him and his creditors. The debtor and his administrator submit the decided-upon proposal to the Official Receiver. Within 10 days of filing, the administrator is required to file a report containing an opinion about whether the proposal is fair, and whether the debtor can reasonably perform it. He also includes a roundup of the debtor's assets and debts, and a list of creditors.
The creditors will have up to 45 days to consider whether to accept or reject the proposal. If any do not respond, they will be considered to have accepted the proposal.
Debtors who take this route must pay the administrator, along with a filing fee to the Superintendent of Bankruptcy. These fees are prescribed by the Bankruptcy and Insolvency Rules (to learn more visit the OSB's website at: http://osb-bsf.ic.gc.ca).
Advantages of consumer proposals versus bankruptcy
- The potential financial loss to creditors is limited.
- The debtor may be able to hold on to some assets.
- Unsecured creditors will not be able to take legal steps to recover their debts from the debtor (such as seizing property) unless the proposal is rejected or annulled.
- When the proposal is fully performed and the debtor has attended through two counselling sessions with a qualified counsellor, the debtor receives a certificate of full performance.
- Credit rating is rated less severely than with a bankruptcy.