Tag: binding agreement

CAN A COMPLETED CONSUMER DEBT PROPOSAL BE ANNULLED? A COMPREHENSIVE GUIDE TO UNDERSTANDING COURT AUTHORITY

Post author By Brandon Smith
Post date February 26, 2024

Consumer Debt Proposal: Introduction

Welcome to Brandon’s Blog post where we will delve into the intriguing world of the consumer debt proposal and the legal framework surrounding them. Today, we will first look at what a consumer debt proposal is, why it is one of the most popular debt solutions to avoid personal bankruptcy and how to go about making one.

Then, we will take a close look at the case of Kamaljit Singh, shedding light on the authority and discretion of the courts when it comes to annulling a completed consumer proposal. Join us as we navigate the complexities of this case and gain a deeper understanding of the legal processes involved.

Consumer Debt Proposal: A Step-by-Step Guide to Financial Freedom

Dealing with debt can be overwhelming and stressful. However, there are solutions available to help manage and alleviate this burden. One such debt relief option is a consumer debt proposal, a formal agreement between you and your creditors to settle your debts for less than what you owe.

Here’s a step-by-step guide to creating a consumer debt proposal and taking control of your finances:

Assess Your Debt Situation:

Before creating a consumer debt proposal, it’s important to make a proper debt assessment. Calculate the total amount of debt you owe, including credit cards, loans, and other outstanding balances. Understanding the full scope of your debt will help you determine a realistic proposal that you can afford to pay. Any insolvent person who owes $250,000 or less (not including any debts secured by a charge on the personal residence) is eligible to make a consumer debt proposal to his or her creditors.

All types of debt qualify for this alternative to filing bankruptcy. Consumer debt, including income tax debts and if you are either a sole proprietor or partner in a business, business debts qualify for debt forgiveness.

Seek Professional Financial Advice:

Consult with a Licensed Insolvency Trustee or a non-profit credit counselling agency to discuss your options for managing your debt. They can provide valuable insights and guidance on creating a consumer debt proposal and negotiating with your creditors.

Create a Budget:

Develop a realistic budget that outlines your monthly income, expenses, and debt payments. This will help you determine how much you can afford to offer your creditors in a consumer debt proposal. Be honest and transparent about your financial situation to ensure the proposal is manageable for you.

Formalize the Consumer Debt Proposal Agreement With A Licensed Insolvency Trustee:

After the no-cost consultation, contact the Licensed Insolvency Trustee who will act as the Administrator in your consumer debt proposal. Provide the Licensed Insolvency Trustee with your list of assets, liabilities, income and expenses including the budget you prepared. The Licensed Insolvency Trustee will take this information and prepare all necessary filing documents, including, the consumer proposal. That is the formal legal agreement you the LIT will present to your creditors on your behalf to vote on.

Once you and your creditors have agreed on a consumer proposal, the Licensed Insolvency Trustee will obtain (deemed) court approval. The consumer proposal is a legally binding process after creditor acceptance and court approval. It outlines the terms of the proposal, including the total amount to be paid and payment terms, being regular monthly payments to your consumer proposal Administrator. It contains the repayment schedule and any other conditions agreed upon. Make sure to review this document carefully before signing it to begin your debt settlement program.

If both spouses are insolvent and the majority of the debts for each are the same, such as when one has co-signed for the other, then it is possible to eliminate these unsecured joint debts through a joint consumer proposal.

Negotiate the Consumer Debt Proposal with Creditors:

Once filed, the Licensed Insolvency Trustee will contact your creditors to advise of the consumer proposal. At this point, you have protection from creditors. All collection efforts, collection action and any legal action against you, including wage garnishment, must stop. The Administrator’s report will explain your financial hardship and offer a realistic monthly payment plan that you can afford.

If required, a meeting of creditors will be held where the Licensed Insolvency Trustee as Administrator will advise you on how to negotiate with creditors to reach a mutually beneficial agreement that will help you eliminate your debt in full by only paying a portion of it, while also satisfying creditor concerns.

The fee of the Administrator is paid out of the total amount to be paid in the consumer debt proposal. It is a Government tariff that the Licensed Insolvency Trustee is allowed to take out of your consumer proposal payments. Therefore, there is no additional cost to the insolvent debtor for professional fees of the Licensed Insolvency Trustee.

Although every situation is different, and there are no guarantees, a consumer proposal that offers to pay about 25% of the total outstanding unsecured debts, is the going rate for consumer proposals to be accepted by the unsecured creditors. This is what sophisticated unsecured creditors like chartered banks expect to see for them to vote for acceptance.

Adhere to the Consumer Debt Proposal Payment Plan:

A consumer debt proposal is a legally binding agreement. Stick to the consumer proposal terms of the repayment schedule outlined in the consumer proposal. Make timely monthly consumer proposal payments to your Administrator over the period of time called for (no greater than a maximum term time period of 60 months) to honour the agreement and gradually eliminate your outstanding debt. Stay committed to your financial goals and prioritize debt repayment to achieve financial freedom.

If you are lucky enough to have a family member willing to lend you the total amount of your consumer proposal, this enhances the chances of a successful consumer debt proposal. It is an effective tool as creditors always look kindly on an immediate lump-sum payment, rather than having to wait up to 5 years to see their reduced amount of money.

Monitor Your Progress:

Track your progress and monitor your debt repayment journey as you make your payments on time. Celebrate each milestone as you eliminate your unsecured debts and work towards financial stability. Examples of unsecured debts that are eligible debts to be eliminated in a consumer proposal are:

unsecured lines of credit;
credit card debt;
personal loans;
vehicle loans;
personal income taxes; and
other unsecured loans;

Stay motivated and focused on your financial goals to successfully manage your consumer debt.

By following these steps and creating a consumer debt proposal, you can take control of your finances and work towards a debt-free future. Remember, seeking professional guidance and staying committed to your repayment plan are key components of a successful debt management strategy.

Can A Consumer debt proposal Be Annulled? Exploring the Case of Kamaljit Singh

In the matter of the consumer proposal of Kamaljit Singh, an important question arises: Does the court have the authority under the Bankruptcy and Insolvency Act Canada (BIA) to annul a consumer proposal that has been approved by creditors and fully performed by the consumer debtor, even after the administrator has been discharged? This question, along with the subsequent determination of whether the court should exercise its discretion to grant the requested annulment, forms the crux of the case.

The first issue at hand is the authority of the court to annul a completed consumer debt proposal. According to subsection 66.3(1) of the BIA, the court does indeed possess the statutory authority to annul a fully completed consumer proposal. This crucial section allows for the annulment of a consumer proposal in cases of:

default
ineligibility of the debtor
injustice
undue delay or
if the court approval was obtained by fraud.

By analyzing this section in the context of the case of Kamaljit Singh, we gain insights into the court’s decision-making process.

Furthermore, it is essential to explore the factors that the court considers when exercising its discretion to annul a consumer debt proposal. In the case of Kamaljit Singh, several factors played a role in the court’s decision.

The knowledge of the debtor and their obligation to disclose potential claims, the creditor’s knowledge of all factors in considering the consumer proposal, the eligibility of the consumer debtor to file a consumer proposal, the amount and nature of the debt, the timing of the application, the interests of the debtor and creditors, and the integrity and public confidence in the bankruptcy system all weighed heavily in the court’s deliberations.

Background – Consumer Debt Proposal Proceeding

Mr. Singh’s statement of affairs dated September 16, 2019, listed unsecured liabilities totalling $81,555, and a contingent amount of $60,000 for the Canada Revenue Agency (CRA). An unsecured creditor, Mr. Nagra, claimed that $ 94,027.98 was owed to him under a judgment as of the date the consumer proposal was filed.

Mr. Singh states that he was not aware of the existence of the default judgment when he had discussions with the licensed insolvency trustee acting as the consumer debt proposal Administrator before filing his consumer proposal, or at the meeting of creditors. The Administrator’s report dated September 18, 2019, refers to an estimated total amount of claims of $81,555. The report also indicates that Mr. Singh’s interest in his matrimonial home was between $30,222 and $75,222 and that Mr. Singh was unable to sell or refinance the property at that time.

The minutes from the creditors meeting held on December 11, 2019 show that there was a total of $136,833.54 in voted claims, which included $75,596.40 for CRA. CRA was the sole creditor that voted in favour of the consumer proposal. The other six proven creditors voted against the consumer proposal. The Dividend Sheet prepared by the Administrator, with a declaration date of March 9, 2023, shows:

$162,326.40 in proven claims; and
$35,373.23 in dividends being paid to the creditors.

Based on a comparison of the statement of affairs and Dividend Sheet, the change from claims totaling $81,555 to $162,326.40 was due to:

CRA having proven a claim of $73,770.60; and

the proven claims of the remaining nine creditors being in aggregate, $7,000.80 higher than the amounts listed in the statement of affairs.

Consumer Debt Proposal: Factors to Consider When Exercising Discretion under Subsection 66.3(1)

The authority to annul a proposal is discretionary. In exercising such discretion, the Court should take into account the interests of the debtor and his or her creditors and balance their interests while maintaining the integrity and confidence of the public. Based on the Court’s review of applicable cases, the Court concluded that the following factors must be taken into consideration:

knowledge of the debtor;
the creditors’ knowledge of the consumer debt proposal;
eligibility of the consumer debtor to file a consumer proposal;
amount and nature of the debt;
timing of the application;
the interest of the debtor and creditors; and
the integrity and public confidence in the BIA and the process of consumer proposals.

Test for Annulment of a Consumer Debt Proposal

The test for the annulment of a consumer proposal is set out in subsection 66.3(1), which provides that:

Where default is made in the performance of any provision in a consumer proposal, or where it appears to the court:

(a) that the debtor was not eligible to make a consumer proposal when the consumer proposal was filed,

(b) that the consumer proposal cannot continue without injustice or undue delay, or

the court may, on application, with such notice as the court may direct to the consumer debtor and, if applicable, to the administrator and the creditors, annul the consumer debt proposal.

Subsection 66.3(1) does not contain language that restricts the timing when such an application for an annulment of a consumer proposal may be made.

This differs from the language of subsection 66.3(3), which provides that a consumer proposal may be annulled after it is“accepted or approved” where the consumer debtor is afterwards convicted of any offence under the BIA.

Consumer Debt Proposal: Knowledge of the Debtor

Mr. Singh was personally served with the statement of claim. He did not take any steps to defend that claim. Mr. Singh states that even if he had been aware of the existence of the default judgment and the writ, he would not have disclosed them to the Administrator because he did not believe that he owed any amount to Mr. Nagra given the payments he and his mother had made to him.

While Mr. Singh may not have had actual knowledge of the default judgment and the registration of the writ at the time he initially met with the Administrator, he was required under the BIA to provide them with information on his financial situation. It was his obligation to inform the Administrator of any potential claims against him, even those he may dispute. The BIA consumer debt proposal process must have at its foundation that all properly secured debts and unsecured debts and liabilities will be disclosed by debtors seeking the protection of the Act.

It was open to Mr. Singh to take the position with the Administrator that Mr. Nagra’s claim should be listed as a contingent amount. This was how the claim of CRA was treated in the statement of affairs. Mr. Singh suggests that he relied on the Administrator to have performed due diligence in connection with filing his consumer proposal and that they did not discover the existence of the default judgment or the writ.

The Administrator is required to investigate or cause to be investigated, the consumer debtor’s property and financial affairs to be able to assess with reasonable accuracy the consumer debtor’s financial situation and the cause of his insolvency. Whatever the steps taken by the Administrator to investigate Mr. Singh’s affairs are, it did not absolve Mr. Singh from the requirement to notify the Administrator of the fact that he had been served with a statement of claim in the previous six months.

Therefore the Court’s view of the knowledge of the debtor that a claim was being pursued by Mr. Nagra, and his failure to disclose this to the Administrator at any time during the consumer debt proposal proceeding, weighs in favour of annulling the consumer proposal.

Consumer Debt Proposal: Knowledge of the Creditor

Mr. Nagra stated that he first learned about the consumer proposal proceeding on June 9, 2023, based on correspondence received by his counsel from counsel to Mr. Singh. He says that had he been notified of the consumer proposal, he would have participated in the process and opposed the proposal. Mr. Singh claims that Mr. Nagra had been aware of the consumer debt proposal since 2019, but he provided no evidence in support of this statement.

Based on the evidence, the Court accepted Mr. Nagra’s evidence that he did not become aware of the consumer proposal until June 9, 2023, which was after the consumer proposal had been completed and the Administrator had been discharged.

Eligibility to File a Consumer Debt Proposal

At the time of the completion of the consumer debt proposal, there was $162,326.40 in proven claims, which, together with his claim of $94,027.98, exceeds the $250,000 consumer proposal threshold. Mr. Singh contests the amount he is said to owe to Mr. Nagra. However, Mr. Nagra has a judgment against Mr. Singh, and that judgment had not been set aside.

An Administrator cannot file a consumer proposal if he or she has reason to believe that the consumer debtor is not eligible to make a consumer proposal. As of September 16, 2019, if Mr.Nagra’s claim of $94,027.98 had been added to the $81,555 listed in the statement of affairs, along with the $60,000 contingent amount for the CRA, the total amount of claims would have been $235,582.98.

By the December 11, 2019 creditors meeting, CRA had a proven claim of $75,596.40, so the total amount of claims would have increased to $251,179.38. As a result, Mr. Singh would no longer have been eligible to complete a consumer debt proposal by the time of the creditors meeting if Mr. Nagra’s judgment was known to the Administrator.

A consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal. If an Administrator determines, after the filing of a consumer proposal, that it should not have been filed because the consumer debtor was not eligible to make a consumer proposal, all that is required of the Administrator is that he or she shall forthwith inform the creditors of this fact. It is on the creditors to commence an application to annul the consumer proposal.

Consumer Debt Proposal: Amount and Nature of the Debt

While the amount is disputed by Mr. Singh, Mr. Nagra has a judgment for $94,027.98. That represents approximately 36.68% of the total claims proven against Mr. Singh. It is a significant claim. The nature of the claim must also be taken into account. As acknowledged by Mr. Nagra in his materials, as he is Mr.Singh’s father-in-law, they are connected by marriage and he and Mr. Singh are deemed to be related persons under the BIA.

Subsection 66.19(2) provides that a creditor who is related to the consumer debtor may vote against but not for the acceptance of the consumer debt proposal. Based on what happened at the meeting of creditors, where $75,596.40 of claims voted in favour of the consumer proposal, and $61,237.14 voted against it, had Mr.Nagra been able to file a proof of claim in an amount over $14,400 and voted against the consumer proposal, it would have failed.

Consumer Debt Proposal: Timing of the Application to Annul

There is no issue with the timing of Mr. Nagra’s motion to annul the consumer debt proposal. He learned of it on June 9, 2023, and submitted a request to the BankruptcyCourt Office to schedule the motion on July 13, 2023.

Consumer Debt Proposal: The Interest of the Debtor and the Creditors

As noted above, Mr. Singh’s proven creditors received $35,373.23 in dividends on account of $162,326.40 in claims. This amounts to a recovery of 21.79 cents on the dollar. If the proposal is annulled, these creditors, along with Mr. Nagra, will be permitted to take steps to recover additional amounts, which would include the $103,631.63 from the sale of the matrimonial home. Unsurprisingly, it would be to Mr. Singh’s detriment if the consumer debt proposal is annulled, since his creditors’ claims would be revived, and they could take steps to recover the $ 103,631.63 that he currently is entitled to keep.

The Court decided that, in balancing the interests between Mr. Singh and his creditors, it weighed in favour of the creditors to annul the proposal. If the consumer proposal is not annulled, Mr. Singh will be permitted to only pay $35,373.23 in dividends to his creditors and keep $103,631.63, because he did not inform the Administrator of the existence of Mr. Nagra’s claim. The Court believed that this would be an unfair result, and negatively impact the integrity of the consumer proposal process under the BIA.

Integrity and public confidence in the BIA and the process of a consumer debt proposal

Mr. Singh argued that the public confidence in the BIA and the process of a consumer debt proposal would be lost if “innocent debtors” like him could have their consumer proposals annulled. The Court felt that Mr. Singh was not “innocent” and that the integrity of the system would be undermined if a debtor was permitted to benefit from not disclosing a potential claim to his or her Administrator at the commencement of the process.

This is especially so in this case because, if the debt to Mr. Nagra was disclosed, it could have a material impact on whether a consumer proposal would be accepted by creditors. The system requires that creditors have confidence that they will be provided with proper notice of a consumer proposal and have the ability to elect to participate in the process if they so choose.

The Court’s Disposition of this Consumer Debt Proposal Matter

The Court has the discretion to annul a consumer debt proposal under subsection 66.3(1), even where the consumer proposal was fully completed. Having considered all of the circumstances and factors listed above, Mr. Nagra satisfied the Court that his motion fits under subsection 66.3(1)(a) and that this is an appropriate case in which to exercise the Court’s discretion.

Therefore, the Court annulled Mr. Singh’s consumer proposal even though he completed it and the Administrator was discharged.

Consumer Debt Proposal: Closing Remarks

The case of Kamaljit Singh serves as a fascinating example of the authority and discretion of the courts in annulling a completed consumer proposal. By carefully considering the factors and legal principles at play, the Court ultimately decided to grant the requested annulment. This decision highlights the importance of transparency, disclosure, and fairness within the consumer debt proposal process.

As individuals navigating the complex world of personal finances, it is crucial to be aware of the legal framework surrounding consumer proposals. Understanding the authority and discretion of the courts empowers us to make informed financial decisions and ensures the integrity of the bankruptcy system.

I hope that this closer look at the case of Kamaljit Singh’s consumer proposal has shed light on the intricacies of consumer proposals and the role of the courts. As always, it is essential to consult with professionals for personalized advice regarding your specific financial circumstances.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

Brandon Blog Post

UNLOCKING THE MYSTERIES OF A REVIVED CANADIAN CONSUMER PROPOSAL: A LOOK BEYOND THE ESSENTIAL 5-YEAR BARRIER

Post author By Brandon Smith
Post date October 2, 2023

Reviving a Canadian consumer proposal: Introduction

If you’re fighting with financial debts and want to stay clear of filing for bankruptcy, a consumer proposal might be a great alternative to take into consideration. A current Court decision in Ontario highlights the significance of making your Canadian consumer proposal payments on time to guarantee its success.

In this Brandon’s Blog, the situation is analyzed, as well as the factors that determine whether a Court can revive a consumer proposal more than five years after it was filed are discovered. This Brandon’s Blog provides useful information for people seeking a fresh financial start.

What a Canadian consumer proposal is all about

A Canadian consumer proposal occurs as an intricately structured contract, between an individual and their unsecured creditors, with the single function of agreeably resolving their burdensome financial debts. Once agreed to, it stands as an irrevocable pact, wielding the power to instantly save the beleaguered debtor from the unrelenting pursuit by his or her creditors, while simultaneously affording the debtor the ability to systematically repay a portion of their debts over an extended period of no more than 5 years. After making the required payments laid out within the Canadian consumer proposal, the outstanding unpaid amount is erased.

To launch a Canadian consumer proposal, one must employ the services of a duly licensed insolvency trustee, also referred to as a LIT or Trustee. The LIT meticulously scrutinizes the person’s financial world and then crafts a detailed debt settlement repayment plan for them.

The benefits of a Canadian consumer proposal

Going with a Canadian consumer proposal presents a person with the bankruptcy alternative that provides a myriad of advantages that can be likened to a world of financial peacefulness:

Immediate Shelter: Upon the submission of a Canadian consumer proposal, a debtor finds themselves wrapped up in a bulletproof shield of creditor protection. It legally protects them against the claims of their creditors. This bars creditors from starting or continuing any legal actions to recover what is owed to them. This includes collection calls and other collection actions on things like credit card debt or income tax debt.

Financial Debt Settlement: The borrower’s obligations go through a metamorphic reduction, changing them right into a workable sum that the borrower can repay over some time. As a result, just a portion of the debts are paid back. After making all the required payments, the unpaid balance is written off.

Structured Settlement Blueprint: The Canadian consumer proposal allows the debtor the opportunity to get into a binding agreement with their creditors to fix their debt problems across an extended period, not surpassing the five-year mark. This gracious break grants the borrower the latitude to pay an amount they can afford, all while finding support in the eyes of their creditors. The debtor also benefits through the two mandatory financial counselling sessions.

Unified Monthly Commitment: Instead of juggling a myriad of creditors paying them inconsistent amounts, a consumer proposal streamlines the borrower’s financial trip. Right here, the debtor need only make the agreed-upon regular payments to their appointed Trustee. The LIT manages to pay the funds out according to the ratified debt settlement plan.

Eligibility requirements for a Canadian consumer proposal

The Office of the Superintendent of Bankruptcy and the Bankruptcy and Insolvency Act (Canada) (BIA) clearly lay out the eligibility requirements for this Canadian consumer proposal legal process. People coming to grips with frustrating debt and satisfying particular financial standards could find themselves suitable prospects for starting a consumer proposal.

These prerequisites include an overall debt level ranging from $1,000 to $250,000 (not including any mortgages or lines of credit secured against the person’s principal residence), while at the same time not being able to pay their debts as they come due. An essential element for restructuring one’s financial debts within the realm of a Canadian consumer proposal is having a consistent source of income.

Additionally, individuals cannot file a second consumer proposal if they are already in one. Also, if a debtor defaults on making all the payments under a consumer proposal, they cannot file another one (more on this soon). It is necessary to understand that each person’s circumstances are unique. So consulting with a Trustee is of the utmost significance in determining one’s eligibility as well as figuring out the personalized plan for debt reduction, including the amount that needs to be paid.

Types of debt covered by a Canadian consumer proposal

A Canadian consumer proposal addresses unsecured debt responsibilities. This includes credit card indebtedness, unsecured personal loans and lines of credit, payday loans, and the worry of income tax obligations. It is incumbent to recognize that secured financial encumbrances owing to secured creditors, such as home mortgages and vehicle loans, do not drop within the ambit of consumer proposals.

Nevertheless, if a debtor’s unsecured debts are significantly affecting their ability to pay off their secured debts, the consumer proposal might yet manifest as a probable option. Student loans do not typically get discharged with consumer proposals, except in cases where the borrower has stopped being a full or part-time student for no less than 7 years.

In summation, the Canadian consumer proposal emerges as a pragmatic solution for people facing monetary problems, earnestly in search of a break from the weight of their insolvency.

Annulment of a Canadian consumer proposal

The annulment of a Canadian consumer proposal is the cancellation of the commitment binding a debtor to their creditors, as laid out in section 66.3 of the BIA. This termination transpires when the borrower either falters in the discharge of their duties or due to a change in their circumstances, making them incapable of sticking to the agreed-upon payments.

The beginning of the annulment procedure can be initiated by the LIT, functioning as the consumer proposal Administrator of a Canadian consumer proposal, or, by any of the creditors. When annulled, the borrower gives up the sanctuary provided by a Canadian consumer proposal, protecting them from legal proceedings.

Debtors need to comprehensively grasp the implications of annulment and get expert advice if they encounter difficulties in meeting their commitments. The annulment of a consumer proposal has significant financial consequences and should be avoided whenever feasible.

The Canadian consumer proposal before the Ontario Court

Background

This case, Re Cumberbatch, 2023 ONSC 5287 is very instructive. It involved a hardworking individual battling financial difficulties, who made a consumer proposal to manage her debts effectively. As she struggled to meet her monthly debt obligations, she realized that a consumer proposal could provide her with much-needed relief and a structured repayment plan.

In the case heard by the Associate Justice, his pronouncement in this circumstance conveys very useful insights. This case featured a person trying to come to grips with the unrelenting stress of financial misfortune, who, in a positive step, filed a Canadian consumer proposal as a strategic method of efficiently navigating her financial obligation problems. As she faced the tough task of meeting her financial responsibilities, the realization dawned upon her that a consumer proposal might function as the cure-all, delivering the much-coveted respite that a skillfully created structure for financial debt negotiation provides.

She approached a LIT who assessed her financial situation, including her income, expenses, and outstanding debts. After careful evaluation, the Trustee determined that she was eligible for a consumer proposal and worked with her to develop a reasonable and manageable debt repayment plan.

Before diving into the Court’s reasoning, let’s first provide some background information about the case. The consumer proposal was initially filed by the debtor to deal with her outstanding debts.

However, due to a collection of unanticipated events, the debtor defaulted under her Canadian consumer proposal by not keeping up with her payments. The debtor defaulted in making payments to the Administrator under the consumer proposal.

As a result of missing 3 months of payments due the consumer proposal was deemed annulled by subsection 66.31(1) of the BIA.

Jurisdiction to revive a Canadian consumer proposal

In the realm of bankruptcy and insolvency law, consumer proposals provide individuals with an alternative to personal bankruptcy. A consumer proposal, as defined under the Bankruptcy and Insolvency Act (BIA), allows debtors to negotiate with their creditors, proposing a plan to repay a portion of their outstanding debts. However, there are instances where a consumer proposal becomes dormant or inactive, leading to questions regarding the Court’s jurisdiction to revive such proposals after the initial five-year period.

The issue of jurisdiction was significantly addressed by the Supreme Court of Canada in the landmark case of A. Marquette & Fils Inc. v. Mercure. In that case, the Supreme Court of Canada stated about the BIA (then called the Bankruptcy Act):

“has its origins in the business world. Interpretation of it must take these origins into account. It concerns relations among businessmen, and to interpret it using an overly narrow, legalistic approach is to misinterpret it.”

In making this commentary, the highest Canadian Court said the purpose of the BIA, is to provide a framework for the effective administration of insolvency matters and to facilitate the rehabilitation of debtors. The Court acknowledged that the successful completion of a consumer proposal is aligned with this purpose, as it allows debtors to repay a portion of their debts in an organized manner.

Bankruptcy courts, applying this philosophy to consumer proposals, have determined that they have the jurisdiction to revive a Canadian consumer proposal that was annulled. The thorny issue before the Court in this case was that more than 5 years had passed since this Canadian consumer proposal was filed. The Court needed to consider if it had the jurisdiction to revive a consumer proposal that on the calendar, would take more than 5 years to complete.

Factors considered by the Court in deciding whether to revive a Canadian consumer proposal

In establishing whether to exercise its jurisdiction to revive a consumer proposal, the Court developed several factors to consider:

The debtor’s persistence in attempting to finish the proposal within the five-year duration.
The reasons for the consumer proposal becoming inactive.
The prejudice or lack thereof to creditors in reviving the proposal.
Any other pertinent factors, such as the debtor’s existing financial circumstance.

The Court emphasized that the decision to revive a dormant Canadian consumer proposal needs to be led by factors to consider fairness to both debtors and creditors. The Court needed to take on a balanced and discretionary approach when exercising its jurisdiction.

Recognizing the Court’s jurisdiction to revive a Canadian consumer proposal supplies higher clarity to debtors and creditors alike, eventually contributing to a much more reliable and equitable insolvency system.

Factors considered for reviving a Canadian consumer proposal

The LIT who acted as the consumer proposal Administrator in this Canadian consumer proposal process, made the application to the Court to revive the proposal. The Court had to take into consideration whether to provide this restoration and also evaluate the effect of reviving the proposal.

In figuring out whether a revival of that consumer proposal was appropriate, the Associate Justice meticulously analyzed different variables. These aspects played a significant role in deciding upon the expediency and justness of revitalizing this consumer proposal. Some of the crucial elements the Court took into consideration included the reason for annulment, the amount already paid under the proposal, and any creditor opposition.

Reason for annulment of the Canadian consumer proposal

The Court paid attention to the reason why the consumer proposal was initially annulled. Reasons that can lead to annulment are usually non-payment by the debtor of at least 3 months’ worth of payments or non-compliance with other provisions of the proposal. If the reason for annulment results from situations beyond the debtor’s control, such as an unexpected further financial setback such as job loss or a substantial life event, the Court may be inclined to revive a Canadian consumer proposal once the debtor shows the ability to continue and complete the outstanding payments.

However, if the reason for annulment is an outcome of the debtor’s deliberate non-payment or unyielding disregard for the proposal, the Court will probably decline a revival application. In such instances, the debtor will need to offer a convincing argument backed by evidence to show why the revival is appropriate.

Amount paid under the Canadian consumer proposal

Another vital aspect is the amount paid by the debtor under the consumer proposal before it was annulled. The Court examines whether the debtor has made a considerable contribution towards their financial obligations as agreed upon in the Canadian consumer proposal. If the debtor has fulfilled their payment responsibilities before the annulment and has shown an authentic initiative to meet their remaining financial commitment under the consumer proposal, the Court is more likely to consider the revival as a practical option.

On the other hand, if the debtor has fallen short of making significant payments or has constantly defaulted on their obligations, a revival probably will not be viewed favourably by the Court. The debtor needs to offer a legitimate reason for their previous repayment shortcomings and show the ability to fulfill the balance of the payments they originally agreed to.

Creditor opposition

The Court thinks about the level of resistance from creditors about the resurgence of the consumer proposal. Creditors play an essential function in the overall decision-making process. If a considerable variety of creditors reveal solid opposition to the revival, it can heavily affect the Court’s decision.

Nonetheless, the Court likewise considers the reasons behind creditor resistance. If creditors are opposed entirely as a result of their positions or an unwillingness to engage, the Court may offer much less weight to their arguments. On the other hand, if the creditors raise valid issues concerning the debtor’s conduct, ability to fulfill their obligations or the fairness of the recommended revival strategy, the Court will thoroughly evaluate these issues.

This Canadian consumer proposal disposition: The Court’s decision in the case of Re Cumberbatch

When it comes to Re Cumberbatch, the Associate Justice made an important choice about the revival of a Canadian consumer proposal.

The Court very carefully assessed the situation surrounding the annulment of the consumer proposal and the reasons presented in support of a revival by the Administrator. It recognized that the unintentional expiry of the proposal was not an intentional act, but instead an oversight. The Court took into consideration the best interests of all stakeholders, consisting of the debtor, the creditors, and the Administrator.

Among the key variables that influenced the Court’s decision was the reality that given that the debtor validated that she would be able to pay the balance of her Canadian consumer proposal, its revival supplied the very best possibility for the debtor to pay off a portion of her debts in an organized and structured fashion. The Court recognized that the debtor had made significant initiatives to satisfy her commitment via the original proposal, and reviving it would allow her to continue on the path toward debt resolution.

Furthermore, the Court additionally took into consideration the interest of the creditors. Reviving the consumer proposal provided a structure where they would certainly receive more of a repayment than if the consumer proposal was not revived and the debtor filed for bankruptcy.

This approach by the Court prioritized fairness as well as guaranteed that the debtor’s financial situation was managed responsibly. The Court likewise followed the Supreme Court of Canada decision as well as others, to use its jurisdiction in a reasonable as well as business-like fashion in deciding that it could revive this Canadian customer proposal, even though doing so means it would take more than 5 years for the consumer proposal to be completed.

So with this set of facts, it is feasible for a Canadian consumer proposal to be revived and finished, in more than 5 years.

Canadian consumer proposal: Conclusion

In the matter of Re Cumberbatch, the Court’s deliberation regarding the approval of the Administrator’s request to reinstate the consumer proposal exemplifies the unwavering dedication of the judicial system to equity and the facilitation of avenues for debtors to remedy their fiscal obligations through the Canadian insolvency legislation. This particular case vividly underscores the paramount importance of procedural precision. Furthermore, it underscores the imperative need to ensure that unforeseeable external factors, which lie beyond the debtor’s sphere of control and yet obstruct the successful completion of a Canadian consumer proposal within the stipulated 5-year timeframe, do not constitute an impediment to the equitable resolution of debt-related affairs.

I hope you enjoyed this Canadian consumer proposal Brandon’s Blog. If you’re struggling with managing your overwhelming debt in a high-interest environment, don’t worry – there are some things you can do to take control of the situation. First, it’s important to create a realistic budget and track your expenses. From there, you can prioritize your debt repayment and make consistent payments to chip away at what you owe. It’s also a good idea to seek professional financial advice to help guide you through the process. Just remember, managing debt is a gradual process that requires commitment and determination, but you can do it! So don’t hesitate to reach out for help from financial professionals.

Individuals and business owners must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

Brandon Blog Post

CONSUMER DEBT PROPOSALS: UNLEASH THE MANY PROFOUND BENEFITS OF ELIMINATING DEBT

Post author By Brandon Smith
Post date January 23, 2023

consumer debt proposals

consumer debt proposals

Consumer debt proposals eliminate your debt stress

Are you stressed out and overwhelmed by debt and don’t know how to begin to eliminate it? We know your pain and can help you because this Brandon’s Blog “Consumer Debt Proposals: The Ultimate Solution for Managing Debt” has got you covered! I provide realistic advice on how to manage and even get rid of debt through a binding debt settlement agreement.

I describe what consumer debt proposals are all about and also look at other debt-relief options like debt consolidation and credit counselling. I will also talk about the recent Canadian government’s warning about taking on high-interest debt from certain companies.

Consumer debt proposals: How Does a Consumer Proposal Work?

If you’re in a tough spot financially, in Canada you can submit a consumer proposal if you owe $250,000 or less (not including any debt registered against your home is one of the types of secured debts that must be paid according to your secured loan repayment terms). It’s an official way to get some debt relief, and it’s all legit according to the Bankruptcy and Insolvency Act. Basically, you work with a Licensed Insolvency Trustee who helps you come up with a plan for paying off what you owe. Then you negotiate with your creditors and hopefully, they accept the proposal.

Making a consumer proposal that unsecured creditors will accept is one of the debt solution alternatives to bankruptcy that requires a few steps to get it done:

Reach out to a qualified Licensed Insolvency Trustee and book a no-cost debt assessment consultation.
During the appointment, answer any questions the Trustee may have truthfully and to the best of your ability.
The Trustee will work with you to come up with a payment plan that fits into your budget and allows you to pay off your debt.

Once you’ve submitted your consumer proposal, your creditors will look it over and then decide if they want to accept it as is or negotiate an adjustment (higher) to your periodic payments to eliminate the amount you owe. They have the option to do either one.

Your creditors can decide to:

Agree to the terms you have proposed (cast their vote in favour).
Decline the terms (vote no).
Decline the terms and suggest a meeting with creditors.
Take no action (which is the same as voting yes).

Your consumer proposal is automatically approved unless more than 25% of the dollar value of the claims of your creditors indicates that they would like to have a meeting of creditors. In that case, that is what will happen.

Once you’ve taken the step of filing for a consumer proposal, you’ll be able to rest easy knowing that you have immediate legal protection from creditors and debt collectors through this financial and legal process. This is called a stay of proceedings where your creditors cannot chase you for the money you owe.

Filing under the bankruptcy process in Canada isn’t your only option! You can work out a legally binding agreement with your creditors through the popular alternative and powerful alternative of consumer debt proposals. With a consumer proposal, you and your creditors can come to an agreement on what portion of the debt you can pay off- and the rest will be written off!

consumer debt proposals

Consumer debt proposals: The voting process

When it comes to a consumer proposal, it’s important to understand the process of how creditors come to a decision to accept or reject the plan. This section will provide insight into how the voting process works.

Once a consumer proposal is submitted, creditors are allowed 45 days to express their decision. They can either accept the proposal or reject it in one of the following ways: replying to the Licensed Insolvency Trustee with their acceptance, not responding at all (which is seen as approval), communicating their rejection or requesting a meeting of creditors.

At the creditors’ meeting, creditors will have the opportunity to decide whether to accept the consumer proposal as is or to make adjustments to it.

Consumer debt proposals: What happens if your offer is approved?

If your proposal gets the green light, you’ll need to abide by what you promised – whether that’s a single payment or regular installments to the Licensed Insolvency Trustee. Plus, you must meet any other conditions that were laid out in the proposal.

In a successful proposal, you can keep your assets (as long as you keep paying what you owe to creditors who have a lien on your assets), and go to the two financial counselling sessions held by the Licensed Bankruptcy Trustee. Of course, you’ve got to pay the Licensed Bankruptcy Trustee on time over the entire period of time your proposal is for.

Failure to do so could result in the revocation of the proposal, the accrual of interest and fees, and even legal action. It’s important to remember that while a consumer proposal can provide much-needed relief, it’s ultimately up to you to stay current with the payments you promised to make.

consumer debt proposals

Consumer debt proposals: What happens should your consumer proposal be declined?

If 50% or more of the creditors vote to reject the consumer proposal, then the Licensed Insolvency Trustee must issue a notice and the consumer proposal dies. In this situation, creditors are free again to pursue collection actions against the debtor.

If 25% or more of the creditors request a meeting, that meeting is referred to as the Meeting of Creditors. At this meeting, an agreement will try to be reached by a majority of the creditors. If the agreement can not be reached, the debtor may need to amend the proposal and resubmit it or look for other ways to solve their financial issues.

If a consumer proposal is declined, it means that the creditors do not agree with the terms of the proposal put forth by the debtor. The main reasons for rejection may be that the debtor is not offering enough money or has proposed an unsuitable repayment schedule.

It is important to note that if you fail to fulfill the requirements of your consumer proposal, it will be deemed null and void. However, it does not free you from your existing debt, and the failure to adequately repay your loans or pay off debts within the terms of the agreement could affect your credit score. Collectors for debts are within their right to renew collection calls and seek legal action for retrieving the debts that they owe. They can sue you and if they get a judgment, they can then get a wage garnishment against you. It is never recommended to default on a consumer proposal.

Consumer debt proposals: If you fulfill the requirements of your consumer proposal

If you fulfill the requirements of your consumer proposal, you will have successfully completed the agreement between yourself and your creditors. This means that you will have made the agreed-upon payments and met all other terms of the proposal. The balance of your unsecured debts that you did not pay off is also eliminated if you fulfill the requirements of your consumer proposal.

One of the benefits of fulfilling a consumer proposal is that you will have lower regular payments monthly, which are based on what you can afford, rather than high monthly payments regardless of your income. Additionally, you will have protection from creditors, as they will not be able to contact you or take money directly from your wages.

After fulfilling a consumer proposal, it will come off your credit report maintained by the Canadian credit bureaus three years after the completion. This report will show that the consumer proposal has been successfully completed and you can rebuild your credit rating and credit score simultaneously.

You will also receive from the Licensed Insolvency Trustee (LIT) acting as the Administrator in your consumer proposal a “Notice of Successful Completion of Consumer Proposal”. This is a very important document, as you will be able to provide it to current or future credit grantors to prove that you successfully completed your consumer proposal and avoided personal bankruptcy.

It is important to note that if you fail to fulfill the requirements of your consumer proposal, it will be deemed null and void. However, it does not free you from your existing debt, and the failure to adequately repay your personal loans, lines of credit or pay off debts within the terms of the agreement could negatively affect your credit score. Creditors are within their right to use collection activity and use legal action for retrieving the debts that you owe. It is never recommended to default on a consumer proposal.

consumer debt proposals

Advice for Consumers: Considerations for Debt Relief and Credit Repair Services

Improving your credit score or credit rating will take time, and requires showing creditors that your habits have improved and that you are paying back your debt on time. Be cautious when seeking help to pay off debt or repair your credit, as some companies may offer misleading solutions. I have been warning about the dangers of such “for-profit” debt settlement companies for years now.

One option for getting help with debt is a debt management plan, which is an informal proposal made by a non-profit community credit counselling agency credit counsellor to your creditors on your behalf. This plan consolidates your debts into one affordable monthly payment and in some cases, you may not have to continue to pay interest on your debt.

However, consumers should be aware that the “for-profit” debt settlement companies may charge high fees, including upfront or advance fees, and may not be able to get creditors to reduce your debt. Additionally, it is important to note that even while using a debt management plan, you are still required to keep making payments on any other debts you owe, which may result in no change to your credit score.

Overall, it is important to be cautious when seeking help to pay off debt or repair your credit and to thoroughly research any company or solution before proceeding. It is also important to consider the potential consequences, fees and overall effectiveness of the solution. A LIT during an initial no-cost consultation will provide many of the services that a “for-profit” debt management company charges for.

Consumer debt proposals: Organizations or firms cannot guarantee the resolution of your financial obligations

Be aware of companies or agencies that claim they can quickly resolve your debt problems by negotiating a deal with the companies you owe money to and letting you only pay back a fraction of your debt. These promises may not be reliable, so it’s best to be wary.

It’s important to remember that if certain creditors don’t agree to your payment plan, you may need to work out a different agreement with them directly. Alternatively, you can consult a LIT about doing a consumer proposal.

It’s also worth keeping in mind that anyone can call themselves a debt consultant, but that doesn’t mean they have the proper training or they’ll be able to help you with your finances.

consumer debt proposals

Consumer debt proposals: No company or agency can give you a fast and easy boost to your credit rating

No Canadian debt consultant, company, or agency can promise a fast solution to your credit score. Improving your credit rating takes time and commitment; you have to show a history of paying your debts punctually.

If you’re looking to boost your credit score, one option to consider is a non-profit credit counselling agency. A credit counsellor can offer a variety of services like one-on-one advice, group sessions, and tips on how to better manage your debt. Just keep in mind that simply talking to a credit counsellor won’t do the trick.

If you’re looking to give your credit score a boost, try paying off some of what you owe. Bringing down your debt-to-credit ratio to under 75% of your credit limit will help. You could also ask your credit card companies or financial institution lenders to raise your credit limit and perhaps even amend your terms of repayment (though the latter will be very difficult) – that’ll help increase your credit score. Ideally, try to use less than a third of your available credit and keep it low, ideally below 30%.

Remember, there’s no shortcut when it comes to improving your credit score. Anyone promising you the fast and easy way is not looking out for your best interests. It takes determination and effort to get your credit back on track. Do your research and make sure you understand any associated fees or consequences before you commit.

Consumer debt proposals: Paying off a consumer proposal early

Sure, you can settle your consumer proposal early, but that might not be the best choice for everyone.

If you’ve got the funds, paying off your consumer proposal earlier could help kickstart your credit repair – but don’t expect it to save you money or guarantee a good credit rating. So think carefully before you commit to paying it off early. In the following section, I describe a very troublesome issue which has now attracted the attention of the Office of the Superintendent of Bankruptcy Canada (OSB).

Paying off your consumer proposal early will do wonders for your mental health – and it’s perfectly acceptable! It’s no secret that financial hardship is incredibly stressful, and five years seems like a lifetime. So treating yourself to an early payoff will help you feel a huge weight being lifted off your shoulders.

If you want to shorten how long your consumer proposal lasts, you can change how often you make your proposal payments. Usually, they’re monthly, but if you switch to making extra payments by paying bi-weekly, you can pay off your proposal faster. Once you’re done paying off your consumer proposal, the unsecured debts you’ve been worrying about will be marked as taken care of on your credit report.

consumer debt proposals

Consumer debt proposals: LITs cannot talk you into getting a loan with a high-interest rate to pay off your consumer proposal early

On January 11, 2023, the OSB issued its position paper titled “LITs Promoting and Facilitating Loans to Debtors“. The problem is that some lenders are offering high-interest loans to people who are about to or are going through a consumer proposal. It looks like they’re giving loans to help people pay off their consumer proposals early, but it’s really just taking advantage of people’s tough financial situations.

The OSB has noticed that some LITs are promoting and encouraging people to take out loans without mentioning the potential drawbacks. They do this by talking up the positives and downplaying the negatives, and they may even pressure people into taking out a loan.

The OSB has come to the conclusion that it’s not in line with the Code of Ethics for Trustees or a LIT’s duties under the Bankruptcy and Insolvency Act and General Rules for LITs to promote or facilitate such loans. Furthermore, such actions are not allowed.

There is also evidence that LITs who receive engagements directly from “for-profit” debt consultants, may be entering into inappropriate arrangements with them. No trustees should ever accept a commission, payment, or any other type of reward from a third party for recommending work concerning a professional engagement, nor should they give out any commission, compensation, or another type of benefit to a third party for obtaining a professional engagement.

For the record, my Firm does not have any arrangements with any party regarding the referral of files and we neither accept nor pay a referral fee

Paying off your consumer proposal early isn’t really an issue. In fact, it can be great if you can afford it thanks to a financial windfall or change in circumstances. Everybody benefits in that scenario. But if you don’t have the means to pay off your consumer proposal quickly, don’t worry. Don’t take out an interest-bearing loan to pay off a consumer proposal. The consumer proposal itself should be considered an interest-free loan.

Look, if a debtor is trying to rebuild their credit with a loan after insolvency, there’s nothing wrong with that. They’re making the choice themselves, so it’s all good. In this case, LITs should explain the pros and cons of these loan products to the debtor. And, it’s important that they don’t push any company or product in particular.

The OSB believes that LITs should not be promoting or facilitating loans since it contravenes the Bankruptcy and Insolvency Act and its Rules. This practice has a negative impact on the LIT profession and the insolvency system. The OSB will be keeping an eye on this issue and taking appropriate action.

You Have Outstanding Financial Obligations — Consumer Debt Proposals

I hope you enjoyed our consumer debt proposals Brandon’s Blog.

There are many financial blogs. Ours focuses mainly on issues of importance to those individuals and businesses with financial challenges or worse, financial hardship, caused by debt problems. Income and cash flow shortages are critical issues facing Canadians, be they employees, entrepreneurs or companies and businesses with debt problems. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.