Consumer Proposals are the only debt settlement programs regulated by the federal government.
You may know that your creditors will vote on your consumer proposal and if more than 50% vote yes your proposal terms will be accepted. But what role, if any, does the government play in approving or processing consumer proposals?
Government Oversite through the OSB
Any bankruptcy or consumer proposal has to be filed with the Office of the Superintendent of Bankruptcy (OSB) for it to be accepted. They monitor the filing and the administration of bankruptcies and proposals and they also monitor the activities and behaviour of Licensed Insolvency Trustees (administrators of consumer proposals), creditors, bankrupts and debtors.
Does the government have to approve your proposal? As the OSB is not owed money by you, they do not have the power to accept or reject your proposal with respect to the amounts being offered to repay creditors. But they do look at your proposal to make sure it complies with certain requirements in the documents and details in the proposal.
How Your Proposal is Filed
When the administrator files your consumer proposal, the paperwork is e-filed to the Official Receiver office – that is the name of the body that does the actual operations work for the OSB. They in effect review the documents to ensure all is proper and issue the Certificate of Filing that makes the consumer proposal official. Then the administrator can notify your creditors of the type of plan you are offering to repay their debt and the creditors can begin to consider if they wish to accept the proposal.
The OSB has a program that checks the e-filed documents and unless there is something seriously incorrect about your proposal, in most cases the Certificate of Filing a Proposal is issued immediately. It too is sent electronically to the administrator.
Sometimes, though rarely, something will “pop” out with the computer that makes it send a note to the Official Receiver that they should physically review the documents.
What would make something “pop” out?
Reasons Why The Government Might Reject the Filing
There are certain reasons that a consumer proposal may not be automatically approved by the OSB. Usually it is because details are missing or incorrect and must be changed to meet requirements set forth in the Bankruptcy and Insolvency Act.
- Missing or incorrect clauses. There are certain clauses that need to be in every consumer proposal. Clauses such as payments to secured creditors (these are the people who lent you money for your house and/or vehicle and hold that item as security) continuing and not included in the proposal unless that creditor is taking back these items. Another example is clauses that determine whether certain creditors will receive payment ahead of others. These payments are clearly defined in the Bankruptcy and Insolvency Act such as employees of a business or support payments in arrears. If these clauses are missing from the proposal, it will not be accepted by the government.
- Payment terms. The proposal also has to provide for payments by you on a regular schedule and within certain time frames. If this is not outlined in the proposal document, it can also cause the computer to “pop” it out. The proposal is required to outline what monies are paid for filing fees, counselling sessions, taxes and of course to the administrator.
- You are already in a consumer proposal. If you have filed a consumer proposal with one trustee and decide that you would rather be with another firm, you cannot simply file a new proposal. You cannot file another proposal at all if you already have proposal in place. If you have signed the paperwork and you change your mind about your trustee or the timing of your proposal, your only option is bankruptcy. If an individual completes a proposal, they can file a second proposal if they incur new debts. However, if a consumer proposal is not completed and is annulled, an individual is not permitted to file a second proposal for the debts that were part of the first proposal, unless they have the prior permission of the court.
There are a few other required clauses that outline duties required by the administrator and even the creditors (creditors typically are not paid more than 100 cents on the amount owed to them).
A consumer proposal is a very flexible plan in that it provides for repayment to your creditors on terms that you can afford. Even if your creditor like the terms it must be prepared correctly.
So does the OSB have to approve your proposal? Yes, but only to ensure that the paperwork is completed the right way and follows insolvency law. Because the OSB is not owed money by you, they do not have the power to accept or reject your proposal with respect to the amount of money being offered.
This is one more reason why you should contact an experienced Consumer Proposal Administrator to file a consumer proposal. They have knowledge and procedures in place to ensure your paperwork is complete and ready for government approval as well as acceptance by your creditors.