If you’re struggling to repay debts, you can ask creditors to reduce the amount you have to repay on your debt by offering a Consumer Proposal. A consumer proposal is legally binding between you and your creditors if they accept the offer made.
The creditors would generally consider accepting this if what you’re offering to them provides a greater benefit to them than they’d receive if you were to file a bankruptcy instead.
As much as you might not want to file a bankruptcy, the creditors likely don’t want you to either.
Once you file a consumer proposal with the assistance of a trustee such as myself, the legal protection goes into place immediately as proposals are filed and registered with the government electronically.
What this means is that every unsecured creditor you owe money to has to stop what they’re doing. You don’t make any payments towards the debts and likewise, they cannot do such things as call you, write to you, demand payments, put the account in collections, garnishee wages.
Before they’ve even seen the proposal, you’re protected. The purpose of this rule is to put all the unsecured creditors on a level playing field – it’s unfair for one creditor to gain an advantage over other creditors by trying to force you to make payments to them once a proposal is in place. However, each creditor will now be allowed an opportunity to have a say and vote in favor of what you’ve offered, or decline.
What’s important to understand is two things:
- Each creditor will be entitled to 1 vote for every dollar you owe them.
- Not every creditor has to agree to the proposal in order for it to be binding on everyone.
The creditors have 45 days to review the proposal you’ve offered. To have a say, each creditor must first prove it’s claim to the administrator showing the details of what you owe. If they don’t object to the proposal, they can simply do nothing, or send a vote indicating their acceptance.
If they have an objection or have reason to believe you should consider offering a larger proposal, they can request a the administrator set a meeting or a date whereby votes of all the creditors can be counted.
In order for their to be a meeting/vote, more than 25% of the creditors must request it. Again, the 25% is based on the value of the debt (For example, if you owe $40,000, creditors holding at least $10,000 of the debt must call for the meeting in order for it to happen).
If less than 25% request a meeting, no vote is necessary and therefore the proposal is automatically accepted regardless of any votes the administrator might have received.
The meeting of creditors
Although they could, it’s not very often creditors actually show up to the meeting, it’s more of a technical terms to describe the counting of the votes. If enough creditors request the meeting/vote, then the administrator will review each voting letter submitted.
If more than 50% voted to accept the proposal, it’s binding on all the creditors.
If more than 50% voted to decline the proposal as filed, the creditors may still change their mind and vote to accept the proposal if a larger offer is submitted to them. This can be negotiated either before or at the meeting.
Negotiations do not happen often in proposals because the creditors know that what you’ve offered is better for them that they’d receive in a possible bankruptcy, so therefore to ask for substantially more might make you rethink the idea that perhaps a bankruptcy might be better after all (they probably don’t want to scare you away into a bankruptcy). Historically in our company, around 99.9% of consumer proposals filed are accepted by the creditors.
To file a Consumer Proposal you need the assistance of an administrator of consumer proposals such as myself. I’m a licensed trustee in bankruptcy and I’m authorized by the government of Canada to be able to help people with the process of filing a Consumer Proposal from start to finish. If you need my help, or want to discuss whether a Consumer Proposal is right for you, contact a consumer proposal administrator in your area.