Consumer Proposal Laws in Canada
HOW ARE CONSUMER PROPOSALS REGULATED?
In Canada, the laws governing consumer proposals are set out in the Bankruptcy and Insolvency Act (the “BIA” or “the Act”). Part III of the BIA outlines the provisions and rules governing proposal generally.
In Canada, there are two types of proposals available to debtors:
i) Division I
ii) Division II (also known as a Consumer Proposal) Division II proposals are called Consumer Proposals and, as the name implies, are limited to individuals whose debts are consumer debts. The BIA, in particular, Subsection 66.12 deals with proposal as they relate to consumer debtors.
In Canada, Consumer Proposals are administered by Licensed Insolvency Trustees / Proposal Administrators.
HOW IS A DIVISION I PROPOSAL DIFFERENT?
A Division I Proposal is often used by businesses or individuals who have some business debts or those who have significant income or would like to keep significant assets, which would otherwise be available to their creditors in a bankruptcy.
In a Division I Proposal, there is no cap or limit on what you can owe, and unlike a Consumer Proposal, there is a formal application to Court required after your Creditors have voted, before it is officially approved. In a Division I Proposal, a creditors’ meeting is mandatory, and Notice of the Proposal must appear in the paper. In a Division I Proposal, you must rectify any default or late payment within 30 days of the default owing, in other words, no more than 60 days can pass since you made your last payment. In a Consumer Proposal, your proposal is annulled when you fall behind to the extent of three month’s payments, or approximately 90 days. In a Consumer Proposal, the maximum period you can take to make your payments is 60 months. In a Division I Proposal, payments can be extended beyond 60 months, to make them more manageable.
There can be many variables including which creditors you may have that can effect which option is best suited to your situation, and has the greatest likelihood of being accepted by your creditors.
We are happy to meet with you and pass on our experience and provide you with feedback on your situation. Please do not hesitate to contact one of our Consumer Proposal Administrators in or near your area, to find out more.