Consumer Proposals

An option under the Bankruptcy and Insolvency Act (“BIA”) that allows you to repay funds to your creditors without filing an assignment into bankruptcy, is a consumer proposal.

A consumer proposal is a repayment plan that can repay up to 100% of the amount you owe to your creditors. It gives you protection from your creditors so they cannot sue you for non-payment of the debt or if they have a court order, to continue garnishing your wages, bank account or some other asset. It usually should offer more to your creditors than they would receive if you filed for bankruptcy. This proposal has to be filed by a trustee who is referred to as the administrator of the proposal.

Proposals can be monthly payments, redemption of assets and offering the proceeds or a lump sum payment within a very short time after the proposal starts. The beauty of a proposal is that it is designed to give the debtor the flexibility to give creditors monies either all at once or over a longer period of time than would occur in a bankruptcy.

The risk in a proposal is that the creditors will say no to whatever plan is offered. After the date of the proposal, they have 45 days in which to accept or reject the proposal. If more than 25% of the creditors who vote have rejected the proposal, a meeting is required. If more than 50% of the creditors who vote have rejected the proposal, unless they have indicated what they need to have the proposal accepted and that is acceptable to the debtor, the proposal will be deemed to be rejected and will be annulled. Thus in most cases the proposal has to offer more funds than a bankruptcy or have features that make it more attractive than a bankruptcy.

If the proposal is accepted and payments are required, it is important that not more than two months of payments are missed. Upon missing a third monthly payment, the administrator of the proposal has no choice but to annul the proposal. Other requirements are to complete two counseling sessions on financial matters and to make sure income tax returns are filed by the appropriate deadlines each year that the proposal is in effect.

Another good feature of a consumer proposal is that if you are able to afford it or your situation changes financially, you can pay off the proposal more quickly than the time period outlined in the proposal. Also, if the proposal is accepted, you maintain control of your assets if they were not offered in the proposal. An example of this is that if you need to move and have equity in your house which was offered as part of proposal payments, you can sell the house and continue the payments from wherever you move without having to submit the funds to the trustee.

In London, of all the bankruptcies and proposals filed with our office, each month approximately 25% or more of them are proposals. Therefore, if you are experiencing financial difficulties and think that a consumer proposal might be the right option for your situation, talk to a professional at Hoyes Michalos & Associates Inc. by calling us in London at 519-435-1500 or 310-PLAN.