There are a few rules:
- The debt in the consumer proposal can only include debt outstanding as at the date of the bankruptcy. It cannot include debt subsequent to that date.
- The consumer proposal has to be accepted by the creditors.
- A person can file a consumer proposal with a trustee different than he used in the bankruptcy.
Filing a consumer proposal, when in bankruptcy. Example #1 – A person in bankruptcy comes into a large inheritance, where the creditors will be paid off in full. If he files a consumer proposal and it is accepted by the creditors the creditors will still get paid in full but the person will not have a bankruptcy on his record. The consumer proposal is filed and accepted by the creditors.
Filing a consumer proposal, when in bankruptcy. Example #2 – A person in bankruptcy gets a new job with significantly more income. He and the trustee calculate that he will now have to pay the bankruptcy estate $1,200 a month for a further 18 months (He was 3 months into his bankruptcy at this time) for total of $21,600. He feels that this is too much for him to handle each month. The trustee suggests he file a consumer proposal where he pays $450.00 a month for 60 months for a total of $27,000. He agrees to this and the creditors accept this proposal.
Filing a consumer proposal, when in bankruptcy. Example #3 – A person is in bankruptcy and his wife comes into a very large inheritance. She agrees to fund a lump sum consumer proposal. The debtor and his wife discuss this situation with the trustee.
The trustee says that under the bankruptcy the debtor is paying the minimum of $1,800. This is enough to pay the trustee fees but will provide nothing for the unsecured creditors. The debt to the unsecured creditors is $30,000.
The wife says she will pay a maximum of $15,000 if the creditors will accept the consumer proposal.
She gives the trustee a cheque for $15,000, which is placed in the trustee’s trust account. The trustee signs a third party agreement with the wife stating that the funds will be returned to her unless the creditors accept the consumer proposal.
The trustee draws up a consumer proposal to the creditors outlining that the debtor’s wife has given a $15,000 payment to the trustee, which is in the trustee’s trust account to be used only if the creditors accept the proposal. The creditors accept the consumer proposal. They get paid in a few weeks the debtor gets his discharge certificate at about the same time.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.