A consumer proposal is an offer made by a debtor to his or her creditors to modify his or her payments. For example, by filing a consumer proposal you may propose that you will pay a lower amount each month, but over a longer period of time. Or you may propose that your creditors accept being paid a percentage of what you owe.
Your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing property or garnisheeing wages) unless the proposal is withdrawn, rejected or annulled or until the administrator is discharged where the proposal was not fully performed (except for debts which would not be released in a bankruptcy by an order of discharge).
Any person who is unable to pay their debts, and whose debts, not including the mortgage on their principal residence, are less than $250,000, may file a consumer proposal. If the debts are more than $250,000, the proposal must be made under Division I of the Bankruptcy & Insolvency Act, which is a somewhat more complicated and expensive procedure.
It is possible to file a joint consumer proposal. Two or more consumer proposals may be joined where they could reasonably be dealt with together because of the financial relationship of the consumer debtors involved. It should be noted that a joint consumer proposal will be available to consumer debtors who do not have total debts exceeding $500,000.
The procedure begins when you seek the help of an administrator who might be a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy. He or she will ask you about your financial situation, assess it and give you advice about what kind of a proposal may be best for you and your creditors. The administrator will ask you to sign the required forms which will then be filed with the Official Receiver.
What happens after filing a consumer proposal with the Official Receiver? What is the next step in the consumer proposal process?
Within 10 days after filing your consumer proposal with the Official Receiver, the administrator is required, as the next step in the consumer proposal process, to send the Official Receiver a report. The report contains the administrator's opinion about whether the proposal is fair and reasonable and whether he or she believes you will be able to perform it. It also contains a list of your assets and debts, and a list of your creditors.
At the same time, the administrator must send to each of your creditors a copy of your proposal and a copy of the report on the proposal. The administrator will ask the creditors to accept or reject the proposal. The administrator will also provide information about calling a meeting of creditors.
Your creditors will have up to 45 days to consider whether to accept or reject your proposal. A creditor may send a note to the administrator accepting or rejecting the proposal. If creditors do not respond, they will be considered to have accepted the proposal. If a sufficient number of creditors accept the proposal, then it will become binding on you and your creditors, and you will have to meet its terms.
If the proposal is rejected, you will no longer be protected by the Act. The administrator will, within 5 days, notify you, all your creditors and the Official Receiver of this fact. Your creditors will now be able to take legal steps to recover their debts from you. If you were bankrupt when you made this proposal, the administration of your bankruptcy will continue.
If, after filing a consumer proposal, the proposal is accepted and then fully performed, the administrator must give a certificate of full performance to you and the Official Receiver and you will be relieved of the debts that were in the proposal.
If you fail to keep the terms of your proposal then, as the next step of the consumer proposal process, the proposal may be annulled. If you were insolvent prior to making the proposal, you return to the same situation and your creditors would have a claim against you for the amount owed to them before the proposal, minus any amount you paid them during the proposal. If you were bankrupt when the proposal was made and the court subsequently annuls your proposal, you will be considered bankrupt on the date of the annulment.
Yes, but the cost of filing a consumer proposal is paid out of your monthly payment. For example, if you propose to pay $300 per month for 48 months, that's what you pay. There are no fee or charges in addition to that amount. Hoyes, Michalos & Associates Inc., the administrator of your proposal, is paid out of that $300 per month, so in effect the creditors are absorbing the cost of the proposal.
Each situation is different, so we recommend that you contact us to review your situation and help you calculate the potential cost of a consumer proposal given your specific circumstances.