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Proposals – what exactly are they?

February 16, 2022

Proposals are filed under either the first or second division of the Bankruptcy and Insolvency Act (“BIA”) – for that you need the services of a Licensed Insolvency Trustee.  Division One sets out a protocol for the filing of proposals that was originally conceived as being of a commercial nature, Division Two was added later with provisions aimed at less complex, Summary, consumer filings.

Whether we are dealing with Division One or Division Two they are collectively referred to as “Proposals”.  Although Division Two proposals cannot be used by corporate entities, Division One proposals can be used by either corporate entities or individual consumer debtors, or even a combination of both.

The most notable differences between the two types of proposal are the voting scheme and a threshold value for filing.  A Division Two proposal requires a simple majority of at least 50% of eligible voters (creditors) to vote in favour of the proposal for it to pass.  Whereas a Division One Proposal requires a majority in number (of creditors) and two thirds in dollar value of the claims of eligible voting creditors to pass.   Division Two proposals have an upper debt threshold of $250,000.  The person filing the proposal must owe less than $250,000 excluding a mortgage on a principal residence.

Both Division One and Division Two Proposals can be filed jointly, provided there is some form of financial interdependency between the filing parties.  Most joint proposals are between spouses.  However, under Division One, a joint proposal may be filed by a mix of corporate and/or individual entities who share some financial relationship that justifies expediting proceedings by enjoining them.  Interestingly, the threshold for a Division Two proposal extends for joint proposals – spouses could each owe $250,000 such that the total debt under the proposal is $500,000 if neither party owes more than the base threshold value.

Whether the proposal be filed under Division One or Two, you may be as creative as you wish with the offering you make to your creditors.  You can offer monthly payments, Under Division Two not to exceed a sixty-month duration, or you can offer a lump sum, payments may be variable based on seasonal employment, they may be made by a third party or contingent on the sale of an asset.   Call us at 519-646-2222 to talk about how creative your payment arrangements can be.

Once agreed upon, the proposal becomes a legal and binding agreement between the parties that leads to freedom from the burden of excessive debts.  A significant number of individual consumers can work on their budgets and pay their proposals off a little earlier than the total allowable time and our office always recommends trying to do so, whether those entail putting a bonus or a tax refund into the proposal as an occasional extra payment or trying to increase monthly payments by a few dollars.

Consultations are free and can be arranged in person, by telephone or by Zoom, call to schedule yours 519-646-2222.