Do creditors have to approve a consumer proposal?

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In Canada, consumer proposals require approval from creditors holding at least 50% of the debt. Once accepted, it binds all unsecured creditors, even dissenters, making proposals a more appealing choice over bankruptcy. For success, craft a clear repayment plan.

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Question

Do creditors have to accept a consumer proposal? I’m wondering if creditors are required to accept my consumer proposal or if they can simply say no. What’s the general practice here, and do I need to worry about them rejecting it?

From: Anonymous Question, Ontario (ON)

Debt Insiders Answer

In Canada, creditors might not be obliged to accept a consumer proposal, but the setup encourages a more positive reception. Basically, you need the nod from creditors holding at least 50% of your total debt for the proposal to fly. Once it does, it’s binding for all your unsecured creditors, even those who might’ve given a thumbs down. Typically, creditors lean towards negotiating terms as they prefer a consumer proposal over taking the harder hit of personal bankruptcy, which can mean zilch in repayment. So, it’s wise to craft a rock-solid proposal that lays out your finances and repayment plan to boost your chances of getting the green light.

From: Anonymous Question

Office of the Superintendent of Bankrupty (OSB) Answer

Creditors are not required to accept a consumer proposal. Under the Bankruptcy and Insolvency Act (RSC 1985, c 11), specifically section 66.3, a consumer proposal is considered accepted if it is approved by the majority of voting creditors representing at least two-thirds of the total value of the claims. If the majority does not approve the proposal, it will be rejected. Therefore, while it is common for creditors to assess proposals and vote accordingly, they can simply choose to reject it if it does not meet their interests.

From: This answer is provided by scanning the OSB Bankruptcy & Insolvency Act and related directives

Related Questions

Here are the top 5 most frequently asked questions related to the acceptance of a consumer proposal in Canada:

1. Do creditors have to accept a consumer proposal?

• No, creditors do not have to accept a consumer proposal, but if they do not respond within 45 days, they are deemed to have accepted it.

2. What happens if my creditors do not accept my consumer proposal?

• If creditors do not accept your proposal, you can change the terms and resubmit, consider other debt alternatives, or file for bankruptcy.

3. How long do creditors have to accept or reject a consumer proposal?

• Creditors have 45 days from the date the consumer proposal is filed to accept or reject it.

4. Can I negotiate with creditors if they reject my consumer proposal?

• Yes, you can negotiate with creditors through your Licensed Insolvency Trustee to come to acceptable terms if your initial proposal is rejected.

5. What percentage of creditors must accept a consumer proposal for it to be approved?

• A consumer proposal is approved if a majority of creditors (based on the dollar value of proven claims) vote in favor of it.

References

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