Alternatives to Consumer and Farm Bankruptcy

AuthorRoderick J. Wood
This chapter covers three different insolvency regimes. The consumer
proposal provisions and the orderly payment of debts provisions of
the BIA both deal with consumer debtors. The Farm Debt Mediation
Act1 covers farmers. All of them operate a s alternatives to bank ruptcy.
By invoking these regime s, the consumer or farm debtor will avoid a
bankruptcy and w ill be entitled to keep his or her as sets.
The consumer proposal provisions perm it consumers to make a
proposal to their creditors. The provisions differ from the commercial
proposal under the BIA in that the process is quicker and simpler and
the voting rules make it easier for the debtor to obtain the approval of
the creditors. The orderly payment of debts provisions, which operate
in only four of the provinces, do not require the approval of creditors.
They merely create a process through which the var ious debts of the
consumer debtor may be consolidated into a single sum. The far m debt
mediation statute provides a process t hrough which a voluntary ar-
rangement can be concluded between a farmer and h is or her creditors.
Unlike commercial restructuring proceedings, t here is no mechanism
to bind a dissenting creditor.
1 SC 1997, c 21 [FDMA].
A consumer proposal differs from a consumer bankruptcy in severa l
respects. First, the property of the debtor does not vest in an insol-
vency administr ator. A consumer debtor may consider a consumer pro-
posal to be a better option since the debtor is able to keep his or her
house, vehicle, and other property. Payments to the creditors are gener-
ally made from the future income or other ear nings of the debtor over
the course of the consumer proposal. A consumer may also choose a
consumer proposal to avoid the stigma of bankruptcy or in the hope
of procuring a more favourable credit history. Second, the insolvency
process does not involve a liquidation of the debtor’s assets. Instead,
the process involves the preparation of a proposal and its accept ance or
rejection through a vote of the creditors. The proposal binds creditors
even if they have voted against it, so long as a majority of t he credit-
ors have approved of it. The voting rules are heavily skewed towards
obtaining approval of a consumer proposal, since silence is taken as
consent to the proposal.2
The choice between making a consumer proposal and making an
assignment in ban kruptcy is generally done in consultation with a
trustee, since both ba nkruptcies and consumer proposal s require the
services of a licensed trustee. However, the BIA attempts to dissuade
debtors from choosing bankruptcy if a consumer proposal is a viable
option. A court is not permitted to grant an absolute discharge if the
bankrupt could have made a v iable proposal but chose to proceed to
bankruptcy as the means to resolve the indebtednes s.3
1) Eligibility
A consumer proposal is a voluntary proce ss that can be initiated only
by a debtor.4 In order to be eligible to make a consumer proposal,
the debtor must fall within t he Division II def‌inition of a “consumer
de bt or .”5 To qualify as a consumer debtor, the debtor must:
2 Registr ar Nettie in Re Sztojka, 2005 Carswe llOnt 7449 at para 2 (SCJ) observed
that the cons umer proposals provision s are “drafted in such a manner a s to
favour creditor apat hy, a nd result in deemed creditor accept ance and deemed
Court approval in t he vast majority of proposal s f‌iled under Division II.”
3 BIA, ss 172(2) and 173(1)(n). A mediation process i s used to resolve this ques tion
if it is the only g rounds for objection to the discha rge. See BIA, s s 170.1(1) –(2).
4 Ibid, s 66.12(1).
5 Ibid, s 66.11(1) “consumer debtor.”

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