Alternatives to Bankruptcy

A.  Am I eligible for a consumer proposal?

There are two types of proposals.  You are eligible to file a “consumer proposal” if you are insolvent and your total debts, excluding the mortgage on your principle residence, are less than $75,000.  The terms of the proposal must be completed within five years and offer the creditors a greater return than what they would receive through a bankruptcy administration.

If your total debts, excluding the mortgage on your principal residence are in excess of $75,000, you can still file a “commercial proposal”.  The legislation governing commercial proposals is somewhat different from that of consumer proposals and you should discuss this further with a licensed insolvency professional.  The term “commercial” proposal should not be construed as only applying to “business” debts, but can be filed for individuals having personal debts of in excess of $75,000 (excluding the mortgage on the principal residence).

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B.  How do I file a proposal?

The first step in considering a consumer or commercial proposal is to meet with a licensed Trustee, such as the firm of Cameron • Okolita Inc. for an assessment which includes a complete review of your financial information.  If the proposal process is the best or preferred course of action, the Trustee or administrator will prepare the proposal and other necessary documents under your direction, which are then filed with the Official Receiver and thereafter, your creditors.

The proposal will include the following three (3) documents:

• The proposal (which sets out your offer and proposed payment terms)
• A Statement of Affairs (which provides a list of your assets, debts, income and expenses and a summary of past financial transactions)
• The Trustee’s Report (with a recommendation to the creditors on the terms of your proposal). 

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C.  What is the cost of a proposal?

At Cameron • Okolita Inc. we require a nominal deposit to pay registration and court fees, necessary disbursements and a small portion of our professional time commitment to file the proposal.  If the proposal is accepted, the creditors will indirectly pay our compensation for undertaking the proposal process.  You do not have to advance a separate payment.  If the proposal is rejected, there is no further cost to you.

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D.  How do my creditors decide on my proposal?

After the consumer proposal has been filed, the Trustee will notify the creditors and provide them with a copy of the proposal and other material.  After the expiry of 45 days, the trustee will review the claims filed.  If unsecured creditors having 25% or more of the debt in dollar value either request a meeting or reject the proposal, a meeting of creditors must be held to consider the proposal.  To be accepted at the meeting of creditors, creditors having more than 50% of the unsecured debt in dollar value have to approve the proposal.  If no meeting is held, your proposal is automatically deemed accepted.

The voting structure for a commercial proposal is somewhat different.  In order for a commercial proposal to be approved, it must be supported by a majority in number of unsecured creditors and that majority in number must hold two-thirds of the dollar value in debt outstanding.

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E.  Is Court approval required?

For consumer proposals, if requested by the Official Receiver or any other interested party (within 15 days after acceptance or deemed acceptance of the proposal), the administrator shall forward the consumer proposal to court for review.  If no request is received to forward the proposal to court, the consumer proposal shall be deemed to be approved by the court.

All commercial proposals must be forwarded to court for approval.

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F.  What are the advantages to filing a proposal?

The advantages to filing a proposal are as follows:

• A stay of proceedings will prevent unsecured creditors from continuing their collection actions until the proposal is withdrawn, refused or annulled.  The stay of proceedings will remain in effect if the proposal is accepted.
• You are not bankrupt and as a result, the duties and consequences of filing an assignment in bankruptcy will not apply to you. (example: no loss of windfalls, no monthly reporting of income and expenses, etc.).
• Consolidation of your unsecured debt with one negotiated monthly payment to the administrator who will collect and distribute the funds on a periodic basis.  There is no requirement to provide collateral or obtain a co-signer for the proposal.
• Reduction of unsecured debt with no ongoing interest charges payable to the administrator.
• Retention of your assets which are owned “free and clear” or on which the secured creditor is prepared, at their option, to allow you to maintain payments.  However, the net equity in your non-exempt assets must be taken into consideration when determining the amount payable under your proposal.
• An accepted proposal is binding on all unsecured creditor’s (even those who may have voted “against” it).  However, a consumer proposal does not discharge those debts outlined in Section 178 of the Act.
• A proposal can be paid out early, at anytime.

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G.  What happens if a proposal is not accepted or subsequently defaults?

The consequences of a consumer proposal not being accepted or going into a subsequent default are as follows:

• If a consumer proposal is not accepted or you subsequently default, (if it was approved), there is no automatic bankruptcy but the proposal process is at an end.  Default occurs where you default to the extent of three months payments in total under the terms of the proposal.  If necessary, the proposal can be amended to modify its terms.  However, the amendment must be filed before the expiry of the third month in default and the amended proposal has to be approved by the creditors.
• The stay of proceedings is lifted and creditors may continue their collection action where the proposal was filed and not accepted or subsequently goes into default.
• Unless the court otherwise orders, the consumer debtor may not make another proposal until the claims of all creditors which were included in the proposal are paid in full.

The consequences of a commercial proposal not being accepted or going into a subsequent default are substantially different from that of a consumer proposal and should be discussed with a trustee.

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H.  Will a proposal affect my job?

No.  An employer cannot dismiss, suspend, layoff or otherwise discipline you solely because you filed a proposal.

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I.  What happens once the proposal is completed?

Those unsecured debts included under either a consumer or commercial proposal will be extinguished once the proposal is completed.  The administrator shall issue a Certificate of Full Performance to you and the Official Receiver to confirm its successful completion.

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J.  What happens to my credit rating?

Typically, most people who are experiencing financial difficult already have a poor credit rating and encounter difficulty in obtaining further credit.  For an individual filing a proposal, the credit bureau will report an R7-debt settlement rating for 3 years after the proposal completion date. 

However, after your proposal has been completed, with the exception of those debts not discharged by proposal and secured debts that you may have chosen to retain, you will be debt free and should therefore be considered a better credit risk.  You may wish to discuss how to rebuild your credit rating with your trustee’s office.