A consumer proposal is one option when you can’t pay your debts. This type of proposal lets you negotiate a payment plan with your creditors. Voting on a consumer proposal is an important step – find out how it works and how you can be accepted!
What happens upon filing?
Consumer proposals can be filed with a licensed insolvency trustee (LIT) when an individual or family is struggling with debt and is unable to repay their creditors in full. One must complete mandatory pre-filing counseling sessions with a LIT before submitting their proposal.
When your licensed insolvency trustee files the proposal, an automatic stay of proceedings is put in place. This means that creditors are not allowed to take any legal or collection action against you while the proposal is being reviewed.
A consumer proposal functions as an alternative to bankruptcy, by offering creditors a percentage of what is owed to them, typically between 30-70%, depending on the circumstances. If accepted by the creditor, the individual is then legally obligated to make monthly payments over a set period, typically 60 months, to repay the remainder of their debt.
How voting works
In a nutshell, when a person files a consumer proposal, they are essentially asking their creditors to vote on whether or not to accept a proposal that would settle the person’s debts for less than the full amount owed.
If approved by at least 66 2/3% of the creditor votes, the proposal is binding on all of the person’s creditors, regardless of how much they may have individually voted against it. So even if one or two creditors vote against it, as long as 66 2/3% of all creditors agree to it, then the proposal will go through.
The voting process usually happens over about two weeks, after which the administrator will tally up all of the votes and report back to the debtor and the LIT.
What is the voting period?
Once the consumer proposal is filed, your creditors will be given 45 days to vote on the proposal. This includes weekends and holidays. Creditors can vote by mail, phone, or online.
How creditors could vote
A creditor can vote in favour of a proposal, or against it, or abstain from voting. They can also vote to accept your proposal but with alternative terms of the agreement, not bother voting at all but will submt a proof of claim, or do nothing at all.
For the proposal to be accepted, at least 50% of the creditors (by dollar value) must vote in favour of it.
The creditor’s vote will determine whether the proposal is accepted or rejected. If a majority of creditors do not approve the proposal, it will be rejected and the debtor will be required to file for bankruptcy.
Who gets to vote on a proposal?
According to the Bankruptcy and Insolvency Act in Canada, each creditor gets one vote for every dollar of debt that the debtor owes. In a consumer proposal, the debtor is offering to pay back a portion of what is owed to creditors. As such, each creditor will get to vote on whether or not to accept the proposal. If a majority of creditors (by dollar amount) accept the proposal, it will be binding on all creditors.
For a vote to be counted, the creditor must submit a proof of claim to the licensed insolvency trustee. The proof of claim is a document that outlines how much the debtor owes the creditor.
Related parties can submit a claim in the proposal to vote. However, they can only abstain or vote against the proposal. A related party is anyone who is closely connected to the debtor or the proposal. This includes, but is not limited to, spouses, parents, grandparents, siblings, children, and in-laws.
Will a creditors’ meeting be held?
A creditors’ meeting will be held if the majority of your creditors (by dollar amount) file a proof of claim. If a majority of your creditors do not file a proof of claim, no creditors’ meeting will be held and the consumer proposal process will move forward.
Creditors’ meetings are presided over by the trustee and are an opportunity for creditors to ask questions and vote on the proposal. To pass, the proposal must be approved by a majority of the creditors who vote. If the proposal is not approved, the debtor may continue to make payments under the original agreement or may choose to file for bankruptcy.
When is a consumer proposal accepted?
If there is less than 25% of creditors requested a meeting, your proposal is automatically accepted in 45 days. This is regardless of the votes that the administrator received for your proposal.
Do creditors often reject a consumer proposal?
Although creditors may initially object to or reject a consumer proposal, in many cases they will eventually agree to the terms of the proposal. This is because creditors know that if the court approves a consumer proposal, they will receive at least some payment on their outstanding debts.
Creditors also typically agree to a consumer proposal because it offers them greater certainty than if the debtor were to declare bankruptcy. In bankruptcy, creditors would receive nothing unless the debtor had assets that could be liquidated.
Thus, while it is not uncommon for creditors to initially reject a consumer proposal, ultimately most proposals are approved by creditors and go on to be successfully completed. If you are considering filing a consumer proposal, we recommend you speak with a licensed insolvency trustee to learn more about the process and what to expect.
