The Bankruptcy and Insolvency Act establishes a simplified procedure to allow proposals by insolvent debtors to their creditors.
A consumer debtor is, by definition, a person whose total debt, excluding the mortgage of their main residence, does not exceed $250,000.
When a debtor becomes insolvent, he can file a consumer proposal under the Bankruptcy and Insolvency Act.
A proposal is an offer made by the debtor to his creditors. This offer usually include partial payment of the debts, without interest, over a period of time defined in the proposal (not exceeding 5 years).
A debtor offers to pay his creditors 50 cents on the dollar (50%) of his total debt over a 36 month period. Monthly payments are made to the trustee each month who distributes the proceeds to the creditors once every 6 months.
As long as the debtor honours the agreement, he is free from any collection actions on the part of his creditors..
For the proposal to be accepted, a simple majority of the value of the claims by the creditors must vote in favor. As soon as the proposal is in the hands of the trustee, the creditors are notified. They now no longer have the right to pursue the debtor for collection of the debts and all legal measures are stayed against the debtor. All recourses are suspended until completion of the proposal or until it is rejected by the creditors.
The rejection of a consumer proposal does not immediately cause bankruptcy. The rate of approval of consumer proposals is high.
Submitting a consumer proposal to your creditors
A Licensed Insolvency Trustee explains to you that a consumer proposal might be the way to resolve your financial situation. The trustee tells you how a consumer proposal is different from bankruptcy and what you need to do.
Informative video: Government of Canada