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Bankruptcy Consumer Proposals

SUMMARY

A proposal is you making a deal with the creditors (it can be full or part payment). You make an offer and the creditors vote to decide if they will accept. You need a majority of the creditors to vote in favour and then the rest must accept the result even if they voted against your offer. Once accepted by the creditors and the court you have a deal. Normally, you will need to rely on the trustee’s experience to advise you whether the creditors will likely accept your offer.

DETAILS

An offer is made to your creditors, usually in monthly payments based on what you can afford. The offer can be to pay the debts in full or a percentage of what is owed. The creditors vote on whether they will agree to your offer. Clearly, the closer you come to paying them if full, the more likely creditors will accept your offer. The proposal is made through a licensed insolvency trustee who prepares all the paper work, mails the offer and records the votes of your creditors.

There are 2 types of proposal: First we briefly mention the Ordinary Proposal, which can be made to all of your creditors, must be reviewed by the courts and if your creditors do not accept the proposal or if you don’t make your payments, you would end up being bankrupt.

A simpler proposal, called a CONSUMER PROPOSAL is available to those owing $250,000 or less excluding their mortgage. The unsecured creditors each get one vote for each dollar you owe them. When they vote, you need more than half of the votes received to be in favour of your offer for the proposal to be accepted. If so, those unsecured creditors who vote against and those who didn’t vote are bound by the proposal. Only unsecured debts can be included in such a proposal, thus car loans, mortgages and other debts where the creditor has a lien on your goods are not addressed and would still have to be paid under the original arrangements.

Court approval is automatic for a consumer proposal unless someone complains to the courts. Such a complaint is extremely rare.

Once approved by the court and your creditors, payments are made to the trustee who divides the payments amongst your creditors.

It is important to set an amount that is fair to the creditors and that is affordable to you. If you fall behind 3 payments in a consumer proposal it ends and you must deal with your creditors once again. However, you do not automatically become bankrupt.

You must attend 2 counselling sessions on money management to complete a proposal.

Unlike a bankruptcy, all of your assets remain with you in a proposal.

When determining the amount to be paid into a proposal one can make the assumption it should pay the creditors more than they would expect to receive in a bankruptcy. Thus, the proposal amount should be greater than the amount of equity in your home, plus the value of other realizable assets and the expected amount of surplus income one would likely pay in a bankruptcy. The trustee will follow-up the values of the assets to ensure that the proposal was fair to the creditors.

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