The world of finance and debt management is often complex and challenging to navigate. One of the many ways individuals attempt to deal with their debts is through a consumer proposal, a legal process sanctioned under the Bankruptcy and Insolvency Act (BIA). In this comprehensive guide, we delve into the intricate details of why the court must approve a consumer proposal, the process, and its implications.
Understanding Consumer Proposals
Before we delve into the role of the court in approving consumer proposals, it’s essential to understand what they are. A consumer proposal is a lawful process intended to help individuals with debts not exceeding $250,000 (sans mortgage on a principal residence) to pay off their creditors. This process was created to offer a simpler debt solution compared to the Division I proposal, which is designed for individuals with debts exceeding $250,000.
Court Involvement in Consumer Proposals
The degree of court involvement in consumer proposals largely depends on the type of proposal and the specific circumstances surrounding it. While all proposals require court approval, not all are automatically filed with the court.
The court becomes automatically involved with the more complex Division I proposals. These proposals must be submitted and approved by both the court and the creditors. In contrast, the court only becomes involved in a consumer proposal when there is a specific request from the creditors, the Licensed Insolvency Trustee, or the official receiver.
Court Approval Process for a Consumer Proposal
When the consumer proposal documents aren’t automatically filed with the court, how does the court approve the deal? There are two approvals required in the proposal process – first from the unsecured creditors and second from the court.
Creditor Approval
Once a consumer proposal is filed, the creditors have 45 days to vote. The proposal must be accepted by the majority of creditors in dollar value. The proposal can be approved if the creditors don’t ask for a meeting or at a meeting of creditors. It’s rare for a consumer proposal to be rejected by creditors.
Court Approval
Following the approval by the creditors, there’s a 15-day waiting period to allow an interested party or the Office of the Superintendent of Bankruptcy to request the court to review the proposal. The proposal is considered court-approved on the 15th day if no party has requested a review.
Court Appearance for a Consumer Proposal
In most instances, a court hearing isn’t necessary for the approval of a consumer proposal as most are deemed-approved. However, if a hearing is requested, you might need to attend. With courts increasing the use of video technology, they are now more insistent that individuals attend hearings.
The Court’s Role in The Consumer Proposal Process
If the court is required to adjudicate a matter, the process begins with the provincial or territorial court where the proposal is filed. For example, in Ontario, the Superior Court of Justice hears personal bankruptcy or proposal matters.
Can a Court Reject a Consumer Proposal?
Yes, a court can reject a consumer proposal even after it’s been accepted by the creditors. This can occur due to technical or legal reasons, if the terms of the consumer proposal are deemed unfair, or if the debtor has committed an offence under the Bankruptcy and Insolvency Act.
The Meaning of Court Approval
Once the court approves a consumer proposal, it becomes a binding contract that cannot be changed without undergoing an amendment process, and it cannot be stopped unless you cease paying for it or if an interested party requests the court to annul it.
The Difference Between Creditor Approval and Court Approval
While creditor approval is the first step for your proposal to advance, court approval ensures that the proposal has met the requirements of the Bankruptcy and Insolvency Act.
Other Instances When Courts May Be Involved in a Consumer Proposal
The court can intervene in the approval process and during the proposal at any time at the request of an interested party or the Office of the Superintendent of Bankruptcy. The court may be involved when a proposal is being annulled or when a request is made to revive an annulled consumer proposal.
The Consumer Proposal Application Process
When filing a consumer proposal, you need to meet with a Licensed Insolvency Trustee (LIT) for a free consultation. You and your LIT will review your financial situation to ensure a consumer proposal is your best debt relief option. After gathering information and preparing documents, your LIT will file it with the government and send a copy to your creditors.
The complexity of a consumer proposal and its implications underscores the critical role of the court in ensuring the process is carried out correctly and fairly. Understanding why the court has to approve a consumer proposal is crucial for anyone considering this debt solution. By doing so, they can navigate the process more confidently, understanding the steps involved and the implications of each stage.
