# Consumer Proposal Definition:

A summary form of bankruptcy for qualified individuals.

In Canada, a consumer proposal, if qualified, entitles the insolvent to a less formal method of bankruptcy, often called summary, allowing the insolvent individual to avoid a formal bankruptcy and resolve his or her debts by way of a settlement or a reduction of the debts.

As the Alberta Court of Queen's Bench wrote in the ironically named case of  Re "Newsham":

"The (Bankruptcy and Insolvency Act) encourages debtors to make proposals before considering bankruptcy as an option.

"Consumer proposals often result in the distribution of more funds to creditors then would normally occur in a bankruptcy. Consumer proposals permit the affairs to be dealt with quickly, efficiently and with a minimum of administration and expense."

The Canadian statute allows for the protection of a consumer proposal to be revoked on certain conditions (§66.3 (1)):

"Where default is made in the performance of any provision in a consumer proposal, or where it appears to the court that the debtor was not eligible to make a consumer proposal when the consumer proposal was filed, that the consumer proposal cannot continue without injustice or undue delay, or  that the approval of the court was obtained by fraud, the court may, on application, with such notice as the court may direct to the consumer debtor and, if applicable, to the administrator and to the creditors, annul the consumer proposal."

Again, from Re Newsham:

"On an application to annul a consumer proposal the court is not required to annul the proposal for default in the performance of provisions in the consumer proposal. The court is vested with a discretion. The nature and extent of the default and the importance of the default to the integrity of the proposal must be considered."

The threshold of debt for which the summary consumer proposal process is available tends to increase with inflation; once at $75,000, it is now (May, 2010), at$250,000.

The Canadian statute extends the summary process only to consumer debtors.

"A consumer proposal can be submitted to creditors only if an individual's total debt does not exceed \$250 000, not including debts secured by their principal residence.

"A consumer proposal is a formal process that is carried out through a trustee in bankruptcy. The trustee puts together an offer to pay creditors a percentage of what is owed to them over a specific period of time, or extend the time the debtor has to pay off the debt, or a combination of both. Payments are made through the trustee, and the trustee uses that money to pay each of the creditors. The debt must be paid off within five years."

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