A consumer proposal is an agreement between you and your unsecured creditors to pay less than what you owe on your debts. It can be a highly effective tool for reducing your debt burden and offers many benefits, such as the right to keep all your assets. But did you know that your credit needs to vote in order to accept your consumer proposal? In this article, we explain how creditors vote on a consumer proposal and what it takes to get yours approved.
Before your proposal can become a legally binding contract, your creditors must approve it. This is done through a vote, where each creditor decides whether to accept or reject your terms. The voting process ensures the proposal is fair and reasonable for everyone involved.
How the Consumer Proposal Voting Process Works
The consumer proposal voting process is pretty straightforward. Once your proposal is ready, your Licensed Insolvency Trustee (LIT) will register the plan with the Office of the Superintendent of Bankruptcy (OSB). Then, they’ll submit it to your creditors for approval.
Your creditors have a minimum of 45 days to review your proposal and vote to accept or reject it. This time period begins with your proposal’s filing date and each day counts, including holidays and weekends.
If enough creditors oppose your proposal’s terms, a meeting may be held to negotiate new terms. During this meeting, your trustee will also tally the votes. The outcome of the count will determine whether your proposal passes or fails; however, if there’s no meeting with creditors, your proposal is deemed to be accepted.
That’s how the consumer proposal voting works in a nutshell. Below, we’ll take a closer look at the process, so you know what to expect.
Note: During the 45-day waiting period, you’re protected from all collection efforts and legal action from your creditors. By law, your creditors must stop all collection calls, wage garnishments, and other legal activities. They also cannot charge interest on your debts, and you’re not required to make any payments. This legal shield is one of the benefits of filing a consumer proposal to deal with unsecured debts.
Which creditors get to vote?
Not all creditors take part in the voting process. First, only unsecured creditors can participate, as a consumer proposal deals exclusively with unsecured debts. Some examples of unsecured debts include credit cards, payday loans, and private student loans.
Second, only “proven unsecured creditors” have the right to cast a vote. In other words, they must be able to demonstrate that you legally owe them money. For a creditor to be eligible to vote, they must submit a Proof of Claim as described in the Bankruptcy and Insolvency Act (BIA).
Your trustee will review each claim after the 45-day waiting period to ensure it’s valid. Votes related to unverified claims aren’t counted.
What type of vote can creditors cast?
After considering your proposal, your creditors may take the following actions:
- Accept your proposal as offered (a “yes” vote)
- Reject your proposal as offered (a “no” vote)
- Submit a proof of claim but not cast a vote (a non-vote is not considered a request for a vote)
- Neither submit a proof of claim nor cast a vote
- Request a modification to the terms of the proposal
- Request a creditors meeting (in conjunction with a “no” vote)
Note: Creditors who abstain from voting are still entitled to receive proceeds from your proposal payments, provided they file a valid claim.
How are the votes counted?
Each creditor gets one vote for every dollar that you owe them. For your consumer proposal to be accepted, creditors representing more than 50% of the dollar value of the debt must approve it. In other words, a “simple majority” is needed for your proposal to get the green light.
For example, let’s say your consumer proposal includes the following debts:
- $5,000 on a credit card owed to your bank
- $5,000 on a line of credit owed to an online lender
- $25,000 in taxes owed to the Canada Revenue Agency (CRA)
- $10,000 on a student line of credit owed to a credit union
In this example, your bank and the online lender get 5,000 votes, the CRA receives 25,000, and the credit union gets 10,000. The total number of votes is 45,000.
What happens if all your creditors vote in favour of your proposal, but the CRA rejects it? Your proposal doesn’t qualify for approval since the CRA holds most of the voting power (25,000 / 45,000 = 55%).
Conversely, your proposal is accepted automatically if the CRA casts a “yes” vote. That means the other creditors are legally bound by the terms of your proposal, regardless of how they voted (or if they bothered to vote at all).
However, there’s a crucial fact to point out here: By law, the votes are only counted if creditors representing at least 25% of the debt request a meeting with your trustee. If no meeting is required, your consumer proposal is accepted automatically!
Possible outcomes of the creditor voting process
Once the voting period concludes, your trustee will inform you of the results. Here are the possible outcomes.
Outcome 1: Instant approval of your consumer proposal
Your consumer proposal is considered accepted if less than 25% of your creditors have asked for a meeting after 45 days. After that, there’s a further 15-day waiting period where creditors can review the terms and ask for a court hearing to approve the proposal if they feel it’s not in accordance with the Bankruptcy and Insolvency Act. Once this period ends, your proposal will receive court approval, making it a legally binding agreement. The agreement binds all creditors that are part of your proposal, including those who voted against it.
The good news is that this is the most likely outcome for your consumer proposal. The reason is that your creditors would prefer to recover a portion of what you owe them rather than risk having you file for bankruptcy, where they may get nothing. As long as you offer to pay a fair and reasonable amount, your chances of a swift approval are high. Your trustee will guide you on how to proceed with your offer.
Outcome 2: A meeting of creditors is held (your consumer proposal is accepted or rejected)
If 25% or more of your creditors request a meeting, the law requires your trustee to arrange a First Meeting of Creditors. The OSB can also demand that a creditor meeting occurs, though this is rare. The meeting must occur within 21 days from the 45 day period’s end date.
The purpose of this meeting is to allow your creditors to review more information about your financial situation, voice their objections to your plan, and negotiate an alternative deal. During this meeting the votes are officially counted, too.
At this point, only two things can happen:
- Your creditors will accept your consumer proposal. For your consumer proposal to be accepted, more than 50% of your creditors, based on the dollar value of the debt vote, must vote in favour of it. If there are no calls for a review 15 days after your proposal’s approval, the court will approve it. Note: the court and OSB have the right to reject it if they feel the terms are unfair.
- Your creditors will reject your consumer proposal. If the majority of creditors, based on the dollar value of the debt, vote against your proposal, you have several options. The first is working with your trustee to modify the terms and resubmitting the plan for approval. The second is filing for bankruptcy, assuming you’ve exhausted all other solutions.
The bottom line on the consumer proposal voting process
Creditor approval is a crucial component of the consumer proposal process. If your creditors reject your plan, your proposal will fail. As a result, you may need to file for bankruptcy or seek other solutions to deal with your debts.
However, in our experience, creditors usually don’t reject a consumer proposal. At David Sklar & Associates, the vast majority of the proposals we file are accepted by creditors. This is due to the great care we take in putting together a plan that works in the best interests of everyone involved.
If you’re in severe financial trouble and unable to repay your debts as they come due, you might qualify for a consumer proposal. Contact us today to book a free, no-obligation consultation to learn if a consumer proposal can help you get the debt relief you need. You deserve a fresh start!
