What Is The Law for Consumer Proposals?
Canada’s general law is the Bankruptcy and Insolvency Act (BIA or “the Act”).
In the Act, Part III deals with Proposals, setting out the legal basis and requirements in:
- Division I, for a Proposal to Creditors.
- Division II, for Consumer Proposals.
An excerpt from the BIA, 66.12:
(1) A consumer proposal may be made by a consumer debtor, subject to subsections (2) and 66.32(1).
(1.1) Two or more consumer proposals may, in such circumstances as are specified in directives of the Superintendent, be dealt with as one consumer proposal where they could reasonably be dealt with together because of the financial relationship of the consumer debtors involved.
(2) A consumer debtor who has filed a notice of intention or lodged a proposal under Division I may not make a consumer proposal until the trustee appointed in respect of the notice of intention or proposal under Division I has been discharged.
(3) A consumer proposal shall be made to the creditors generally.
(4) Any creditor may respond to a consumer proposal by filing with the administrator a proof of claim in the manner provided for in
- sections 124 to 126, in the case of unsecured creditors; or
- sections 124 to 134, in the case of secured creditors.
(5) A consumer proposal must provide that its performance is to be completed within five years.
(6) A consumer proposal must provide
- for the payment in priority to other claims of all claims directed to be so paid in the distribution of the property of the consumer debtor;
- for the payment of all prescribed fees and expenses
- of the administrator on and incidental to proceedings arising out of the consumer proposal, and
- of any person in respect of counselling provided pursuant to paragraph 66.13(2)(b); and
- for the manner of distributing dividends.
1992, c. 27, s. 32; 1997, c. 12, s. 46.
You may think of a proposal to creditors as the consumer proposals “big brother”. Unlike the consumer proposal that is limited to $250,000 worth of debts, there is no limit in a proposal to creditors. This procedure was originally created as a means for businesses to restructure without having to file an assignment in bankruptcy. In the early 1990s the Bankruptcy and Insolvency Act was amended and the consumer proposal was created. The intent was to provide individuals with a procedure for restructuring their personal debts in the same manner that businesses could, by using a simplified version of the proposal to creditors.
If your debts are too high to qualify for a consumer proposal then we strongly suggest you contact a trustee to discuss your options, including a proposal to creditors.
For a free consultation on whether a consumer proposal is right for you, contact a Licensed Insolvency Trustee near you.