Why does the court have to approve a consumer proposal?

Posted on 23 September 2023

Written by Graeme Hamilton

A consumer proposal is Canada’s most popular bankruptcy alternative. It is a legal debt settlement process in line with the Bankruptcy and Insolvency Act, whereby an individual works with a Licensed Insolvency Trustee to suggest an affordable monthly repayment figure to their creditors. Often, it results in reducing unsecured debts by up to 80%, while enabling you to keep your assets. If accepted, you are only committed to making your manageable monthly repayments for a period of up to 5 years. Although the consumer proposal process is primarily a formal agreement between a debtor and their creditors, part of the process does include court approval. At Spergel, we have a 99% approval rate on any consumer proposals we file, and so the process is very familiar to our experienced Licensed Insolvency Trustees. In this article, we will explore common questions like ‘why does the court have to approve a consumer proposal’, and share the benefits for both creditors and debtors.

Are consumer proposals filed with the court?

Consumer proposals are sometimes approved by the court. This is usually when they are needed, for instance, if a request has been made for the court to be involved by the creditors involved, the Licensed Insolvency Trustee, or the official receiver. The reason for this is so that all individuals involved in the consumer proposal are treated fairly. The court reviews the consumer proposal to ensure that it offers a balanced approach to debt repayment, and takes into consideration the financial circumstances of the debtor. It will also check to assess the feasibility of a consumer proposal, to see if it is realistic that the debtor will be able to make their proposed repayments each month. This helps to prevent debtors from filing consumer proposals that they are unable to fulfil. Consumer proposals are typically intended for Canadians with debts valued up to $250,000, excluding mortgage debt.

When are consumer proposals approved?

There are two approvals required as part of the consumer proposal process. You might be wondering how this happens if consumer proposals are not automatically filed with the court. Firstly, approvals are made by unsecured creditors, and there may be secondary approval required by the court, depending on the scenario:

  • Creditor approval. When your consumer proposal is filed, creditors usually have 45 days to vote on it. In order for a consumer proposal to be accepted, the majority of the creditors need to accept. A creditor’s input is weighed by the dollar value that they are owed. They will receive a vote for each dollar they are owed. If the creditors do not ask for a meeting of creditors based on the consumer proposal put forward, it is considered approved. In some occasions, creditors might choose to reject a consumer proposal. If this happens, your Licensed Insolvency Trustee will work to negotiate with your creditors on your behalf. At Spergel, we have a 99% success rate on any consumer proposals we file, making us well placed to help you with yours.
  • Court approval. Once a consumer proposal is approved by creditors, there is a 15 day period for any parties or the Office of the Superintendent of Bankruptcy to request to review the consumer proposal. This may occur if anyone considered the terms to be unfair. If there is no request, the consumer proposal is considered approved.

When do you need to go to court?

In most instances, consumer proposals are approved without the need for a court hearing. If, on the rare occasion, a hearing is requested for your consumer proposal, you may need to attend court with your Licensed Insolvency Trustee. There may be direct questions that you need to answer. This will be important so that you can provide your side of the story, and share any relevant information about your financial situation. This could help to have your consumer proposal approved. If the court is requested, it usually begins at a provincial or territorial court. If there are appeals, the Courts of Appeal will get involved. The Supreme Court of Canada ultimately has the right to hear and decide on matters brought before it. Your Licensed Insolvency Trustee will help you each step of the way. At Spergel, unlike other bankruptcy firms, you are assigned your very own Licensed Insolvency Trustee from the beginning of your debt relief journey, instead of passing you from person to person.

Can the court reject a consumer proposal?

Yes, the court can reject a consumer proposal – in some instances, even when it has been accepted by creditors. They might reject it for the following reasons:

  • If there are technical or legal reasons why perhaps the consumer proposal should not have been filed in the first place
  • If the court thinks the consumer proposal terms are not fair to the debtor and creditors
  • If the debtor has committed an offence under the Bankruptcy and Insolvency Act

It could be that you still have debts owed from a previous consumer proposal that you may have filed. This could only happen if a court hearing is required. At Spergel, your Licensed Insolvency Trustee will work with you to understand any reasons why your consumer proposal could be rejected to avoid this outcome. We are with you each step of the way.

What happens when the court approves your consumer proposal?

Court approval means that the court thinks that the Bankruptcy and Insolvency Act has been followed appropriately, and all needs met. Once your consumer proposal is approved by the court, it becomes a solid contract. It cannot be changed without following a strict amendment process, and it also cannot be stopped unless you pause your payments, or if an external party asks for it to be annulled. The latter scenario is rare. Should you stop a consumer proposal following approval, you will not be able to file another consumer proposal on the same debts unless you gain approval by the court to do so. It is possible to withdraw your consumer proposal and file another consumer proposal on the same debt if your original consumer proposal has not yet been approved. This is useful in scenarios where you may finally be able to include any student loan debt – if seven years has passed since your studies.

How do you file a consumer proposal?

In order to file a consumer proposal, you need to work with a Licensed Insolvency Trustee. Most reputable bankruptcy firms – including Spergel – offer a free initial consultation. Our Licensed Insolvency Trustees treat every individual with compassion and understanding, and work to review your financial circumstances. They will inform you of your options, and ensure that a consumer proposal is the best form of debt relief for you. They will review your budget and help you to propose an offer that is manageable for you and likely to be accepted by your creditors. Your Licensed Insolvency Trustee will file all of the paperwork with the government, and inform your creditors of your consumer proposal. Your creditors are then able to vote whether or not to accept your consumer proposal. Your Licensed Insolvency Trustee will count the votes and inform you of the result. Consumer proposals can be hugely valuable in handling financial difficulties and can reduce your unsecured debts by up to 80%. There are plenty of advantages, including protection from creditors and the ability to keep your assets. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, meaning you have a 99% chance of reducing your debts by 80%.

More questions on ‘why does the court have to approve a consumer proposal?’ The court approval process is an important step that ensures fairness, transparency, and compliance when filing a consumer proposal. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel if you are interested in filing a consumer proposal, or if you want to explore your debt relief options.

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Graeme Hamilton

Graeme Hamilton is a Chartered Insolvency and Restructuring Professional with over 10 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on bankruptcy and debt relief in the Ontario region. Prior to establishing his career in the insolvency industry, Graeme lived in Cambodia doing volunteer work with NGO's.

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