There are two types of personal proposal a person can file. One is a Consumer Proposal which is a simplified form of Proposal available to debtors owing only consumer debt amounting to less than $75,000, excluding a mortgage on the principal residence. The other one is a Division I Proposal which can be for personal or business debt. There is no dollar limit on the amount of debt. More information on these two types of proposal can be found here. There is also a good discussion of consumer and division I proposals in an article in the December, 2004 issue of the National Debtor Creditor Review. The article is by Scott W. Nettie and Dennis Kish.
When I had my practice we fixed our fees in a Division I Proposal to make the fees comparable with the fees in a Consumer Proposal. This was done when the proposal was for an individual with consumer debt only. We explained the differences between the two types of personal proposal to all debtors who had the capacity to make a proposal and gave them the choice of which type of proposal to file. They overwhelmingly chose a Division I Proposal over the Consumer Proposal. I personally did scores of personal proposals and only had one person select a Consumer Proposal over a Division I Proposal.
In my opinion the Division I Proposal is vastly superior to a consumer proposal for the following reasons:
• Costs are the same;
• Funds distributed to the creditors are the same;
• Will conclusively deal with the person’s financial problem as either the proposal will be accepted or the person will be in bankruptcy;
• Will let the creditors know the debtor is serious about the proposal terms since if the creditors vote against the proposal the person will be in bankruptcy;
• Will ensure the continuity of the Stay of Proceedings. There is the danger that once a consumer proposal is voted down and the stay is thereby lifted that creditors such as CRA could place a lien against an asset;
• The person is not required to take two counselling sessions under a Division I proposal;
• Will allow the person to file the proposal with a minimum payment since the trustee’s fees are more protected in a Division I Proposal. A prudent trustee in a consumer proposal should protect his fees by getting an “up front” payment of at least $952.50 ($750.00 plus the $50.00 court fee and the OR fee of $100.00 plus GST of $52.50)
• The result is known quicker in a Division I Proposal; 21 days vs. 45 days, at the soonest, for a deemed acceptance in a Consumer Proposal. Creditors can request a creditors’ meeting in a consumer proposal, which can bring the time before the debtor knows if his consumer proposal is accepted to more than 66 days.
Thanks to Ian Schofield, a trustee in bankruptcy, with Meyers Norris Penny in Saskatchewan, for pointing out an error in this blog. Ian pointed out that credit counselling is NOT required in a consumer proposal.
The intention of the Bankruptcy and Insolvency Act was to make this mandatory before a consumer proposal was satisfactory completed, but the wording was not clear enough to satisfy the courts.
The new law that was passed on November 25, 2005 (but will not be enacted until June 30, 2006 at the earliest) will correct this:
56. Sections 66.37 and 66.38 of the Act are
replaced by the following:
…
66.38 (1) If a consumer proposal is fully
performed, the administrator shall issue a
certificate to that effect, in the prescribed form,
to the consumer debtor and to the official
receiver.
(2) Subsection (1) does not apply in respect
of a consumer debtor who has refused or
neglected to receive counselling provided under
paragraph 66.13(2)(b).
I completely disagree with your conclusions in this article. In most cases a consumer proposal is vastly superior to a Division 1 proposal for a number of reasons:
1. A Division 1 proposal costs more. The administrator is required to hold a creditors meeting, open a court file, attend a court approval hearing, and operate a separate trust account. No competent administrator in Canada would take on all of these additional costs and still do the file for the same fee as a consumer proposal, where they have none of these costs.
2. A creditors meeting must be held in 21 days, versus 45 days for a consumer proposal. This is a big disadvantage, not an advantage, since it takes most creditors a month to respond to a proposal. Big banks are not fast and efficient.
3. Saying that a Division 1 proposal conclusively deals with a person’s problems because failure causes a bankruptcy is silly. Suicide is never a solution.
4. Not having counselling sessions is not an advantage. Numerous studies show that counselling is an important part of the rehabilitation of the honest but unfortunate debtor.
5. The continuity of the stay of proceedings is also silly. If the consumer proposal is rejected, the debtor can go bankrupt that same day; CRA is not fast enough to put a lien on that quickly.
Parliament introduced consumer proposals as a streamlined way to deal with debts, so to suggest that debtors should file a more complicated procedure is like recommending open heart surgery instead of less invasive procedures. It just does not make sense to do a Division 1 proposal when a consumer proposal is possible.
I was reading the above articles regarding consumer proposals. Obviously different conclusions. I am considering a CP and am now a bit confused. This is a major step for me Can anyone help with additional comments?