Understanding Ontario’s Consumer Proposal Laws and the Bankruptcy and Insolvency Act of Canada
Financial hardships can strike anyone at any time. In these circumstances, understanding the legal avenues available to manage debt can be pivotal. In Canada, and specifically in Ontario, two significant legal mechanisms can help individuals and businesses tackle overwhelming debt – Consumer Proposals and Bankruptcy. Both are governed by the Bankruptcy and Insolvency Act and additional provincial laws, such as Consumer Proposal Laws in Ontario.
What is the Bankruptcy and Insolvency Act?
The Bankruptcy and Insolvency Act (BIA) is a federal legislation in Canada that provides mechanisms for debtors to escape financial distress and start afresh. The Act outlines the rights, duties, and responsibilities of the debtor, the creditors, and the Licensed Insolvency Trustee (LIT).
Understanding Consumer Proposals and Bankruptcy
Consumer Proposals and Bankruptcy, albeit different, are two powerful ways to tackle insurmountable debt. Let’s explore these avenues and understand what sets them apart.
Shared Features
The Bankruptcy and Insolvency Act governs both Bankruptcy and Consumer Proposals across Canada. That means, whether you file a Consumer Proposal in Ontario or elsewhere, the same federal guidelines apply, although there could be additional provincial regulations as well.
Both options offer immediate relief from debt. They serve as a lifeline when your liabilities exceed your ability to pay. Moreover, they can halt collection calls and court proceedings initiated by creditors.
If a debtor doesn’t adhere to the terms of their Consumer Proposal or personal Bankruptcy, creditors can seek legal remedies as outlined in the BIA. The Act also stipulates penalties for fraudulent filings.
In both cases, a Licensed Insolvency Trustee must file the paperwork. The LIT administers the Bankruptcy or Consumer Proposal, guided by the rules established in the BIA.
Distinguishing Factors
Despite the similarities, there are key differences between Bankruptcy and Consumer Proposals.
Bankruptcy
Bankruptcy is a legal process where:
- The debtor owes at least $1,000, but there’s no upper limit.
- The Bankruptcy is usually discharged between 9-36 months of making payments.
- The debtor must submit their expenses and income monthly to the LIT.
- Future payment amounts may change if the debtor’s income fluctuates.
- Creditors may be able to seize some of the debtor’s assets.
- The debtor’s tax return may be used to pay off the debt.
- A first-time Bankruptcy stays on the debtor’s credit report for six to seven years post-discharge.
- Both businesses and individuals can file for Bankruptcy.
Consumer Proposal
On the other hand, a Consumer Proposal is an agreement that allows debtors to pay off a portion of their debt, and the rest is forgiven. The specifics of a Consumer Proposal include:
- The debtor’s debt ranges from $1,000 to a maximum of $250,000.
- The debtor must be insolvent.
- The debtor has up to five years to pay off the debt.
- Filing a Consumer Proposal could cost more than filing for Bankruptcy.
- The debtor is entitled to keep their tax returns.
- Assets do not get turned over to the LIT.
- The debtor doesn’t need to report income or expenses to the LIT.
- The debtor can repay the Consumer Proposal earlier.
- The Consumer Proposal remains on the debtor’s credit report for three years after completion.
- Only individuals can file a Consumer Proposal.
Procedure to File a Consumer Proposal
If you’re insolvent, meaning your liabilities exceed your assets and you’re unable to meet your obligations, a Consumer Proposal could be your way out. Let’s take a look at how this process works.
Consumer Proposal Laws in Ontario
The Bankruptcy and Insolvency Act delineates the steps to file a legally compliant Consumer Proposal. It elaborates on the roles and responsibilities of the debtor, creditors, and the LIT.
To start, you need to get in touch with a Licensed Insolvency Trustee. They will assess your financial situation and suggest potential solutions. If a Consumer Proposal is deemed the most suitable option for you, they will guide you through the process.
The debtor, along with the LIT, completes a Consumer Proposal application. The LIT then submits this proposal to the creditors and the Office of the Superintendent of Bankruptcy (OSB).
Post submission, a Stay of Proceedings is enacted, halting all collection activities, legal actions, and wage garnishments by the creditors. This often brings much-needed relief to the debtor.
The creditors have up to 45 days to accept or reject the proposal. If rejected, a meeting is called with the creditors to negotiate acceptable terms.
Once the proposal is accepted, the debtor makes payments to the Trustee, who then forwards these payments to the creditors. These payments include all costs associated with the Consumer Proposal, including the LIT’s fee, making the payments significantly lower than before.
As per the Consumer Proposal laws in Ontario and the rest of Canada, debtors are required to complete two counselling sessions with the LIT. These sessions cover topics like money management and credit and debt issues.
After completing all steps and making all payments, a Certificate of Full Performance is issued. The Consumer Proposal will stay on the debtor’s credit report for three years post-completion.
Seeking Professional Help
If you’re dealing with a crushing debt burden, professionals like Licensed Insolvency Trustee, Bankruptcy Canada can help. They can discuss all available options with you, helping you make an informed decision.
