Proposal FAQs

Below are a series of common questions. Click them to view the answer, but remember your circumstances are unique and nothing can replace a discussion with one of our professionals.

What is a Consumer Proposal filed under the Bankruptcy and Insolvency Act?

A Consumer Proposal is an agreement between a person and their unsecured creditors as a group. The agreement sets out what the person will do to settle their obligations to the unsecured creditors, thus avoiding bankruptcy.

A person filing a Proposal must have less than $250,000 of debt, excluding mortgage debt on their home. The Proposal is filed through a Trustee/Administrator, who notifies and reports to the creditors regarding the terms of the Proposal. If the majority (by dollars owed) of creditors vote in favour of the Proposal, and the court approves it, the Proposal is a contract binding on all creditors. If the creditors vote against the Proposal then the person is not bankrupt, but may have few options other than filing bankruptcy.

Filing a Proposal has a number of immediate advantages for a person with debt problems, including: The filing stops all collection and legal actions by unsecured creditors; and the Proposal process gives the person an opportunity to disclose the facts of their financial situation and make a settlement offer to the group of unsecured creditors that is fair to both the creditors and the person.

Reasons why a Consumer Proposal may be a better choice than Bankruptcy

Proposals must provide a better result for creditors than bankruptcy therefore they are generally more expensive than bankruptcy. Otherwise, there is no reason for creditors to accept a Proposal. A better result can be because a quicker distribution, lower costs of administration and/or a more certain outcome of concerning issues. Proposals are particularly useful in the following situations:

  • Where the person desires a certain result or a quick resolution, and is prepared to pay a premium to achieve that result.
  • Where discharge is likely to be an issue or a substantial condition discharge is likely to be imposed.
  • Where the person finds bankruptcy unacceptable.
  • Where the person wishes to continue in business and because of specific circumstances will be prevented from so doing if they become bankrupt.
  • Where professional accreditation may be lost or put at risk by a bankruptcy.
  • Where a bankruptcy will result in a secured creditor acting on its security.
  • Where the person wishes to retain some key assets (e.g. equity in a home, heirloom, lawsuit, a financial claim against a third party, or impending inheritance).
  • Where the person has previously been bankrupt.

Often a Proposal requires monthly payment over a period of time. If the person who filed the Proposal fails to make these payments and falls 3 months into arrears, the Proposal will be annulled and the person may then have few options other than filing bankruptcy. It is very important for the person to ensure that they can make the payments over the period of time and to have contingency plans in the event their income is interrupted during the Proposal period.

What is a Division 1 Proposal filed under the Bankruptcy and Insolvency Act?

  • A Proposal can be filed by a person or a corporation but only through a Trustee in Bankruptcy.
  • The filing of a Proposal stops all collection and legal actions by unsecured creditors.
  • A Proposal, if accepted by the creditors and approved by the Court, is a binding agreement between the debtor and all creditors that are a party to the Proposal.
  • Secured creditors can be named in a Proposal and can be stayed, but their accepted terms of the Proposal is required or their rights are revived.
  • The creditors must be better off under a Proposal than under a bankruptcy.
  • Creditors vote on the Proposal, in person or by mail, at a creditors' meeting held within three weeks of the filing of the Proposal.
  • The Trustee must file a report to the creditors on the affairs of the debtor person or company, and the causes of financial difficulty.
  • In order to be accepted by the creditors, the Proposal must receive approval by at least 66.7% (2/3) in dollars and 50% plus one in number of eligible creditors who vote. The Proposal must then be approved by the Court.
  • If the Proposal does not receive the required votes, the person or the company is bankrupt effective on the date of the creditors meeting.
  • When the Proposal is approved by the Court all unsecured creditors are bound by the Proposal, including those creditors who voted in against the Proposal.
  • If the terms of the Proposal are not honoured, then the Trustee or a creditor may apply to the Court for the Proposal to be annulled and the person or company to be placed into bankruptcy.

The Proposal must include provisions to pay:

  • Employee source deductions outstanding within 6 months after Court approval.
  • Employee and former employees’ outstanding wages and vacation pay up to a maximum of $2,000 immediately after Court approval.

How can I save my business with a Proposal?

More incorporated and personal businesses fail than necessary! Very often a business can be saved if financial problems are dealt with in time. Even if a business is insolvent it may be possible to save it by using a provision under the Bankruptcy and Insolvency Act to file a Division 1 Proposal.

A Division 1 Proposal is filed through a Trustee in Bankruptcy who works with the management of the business to draft a Proposal that presents a "win - win" situation for both the business and the creditors. The Proposal forms a settlement offer to the business' creditors. The settlement usually involves the creditors accepting less than they are owed, over time so the business can survive.

In a successful Proposal the company wins because it survives. The creditors win because they retain a customer and also because they get some of their money, whereas in bankruptcy they will receive less and possibly nothing.