A Proposal, under the Bankruptcy and Insolvency Act (BIA), is a formal offer from you to your creditors, where you agree to pay part or all of your debt over a specific period of time. This is done by making payments in the amount outlined in your Proposal, to the Trustee, who then distributes the money to the creditors. Once you have fulfilled the terms of the Proposal the balance of the debt is erased.

Proposals vary a great deal, because they are designed on an individual basis to meet the specific needs of each debtor. Minimally, a Proposal must offer the creditors more money than they would get if you went bankrupt.

Under the BIA there are two types of Proposals – Consumer Proposals and Corporate Proposals.

Both types of Proposals share these similarities:

• They allow the debtor to void bankruptcy
• They settle the debt
• Creditors are prevented from taking legal collection action, such as a garnishment.
• Once a Proposal is accepted by a majority vote of the Creditors, all Creditors are bound to the Proposal.

Consumer Proposals

These are intended for individual debtors who want to settle their debt with their creditors and avoid bankruptcy.

Qualifications:

• Must owe less than $250,000.00, excluding a mortgage on your principal residence.
• Must be completed within 5 years.

Advantages:

• Avoids bankruptcy.
• Gets rid of your debt
• Offers affordable payments
• Disadvantages
• Generally costs more than a bankruptcy
• Often lasts longer than a bankruptcy
• Can negatively affect your credit rating.
• Financial Counseling is included in the process

Corporate Proposals

Corporate Proposals, (also known as Division1 Proposals) are intended for corporations or for individuals who owe more than $250,000.00 excluding a mortgage on your principal residence.

They are very similar to consumer proposals with a few exceptions, including the fact that the debtor is automatically bankrupt if proposal rejected by the creditors or the court.

Counseling is not required.