Alternatives to Consumer and Farm Bankruptcy

• Author: Roderick J. Wood
• Pages: 563-581

563

CHA PTER 2 0

ALTER NATIVES TO

CONSUMER AND

FARM BANKRUPTCY

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].

BANKR UPTCY AND INSOLVENC Y LAW564

A. CONSUMER PROPOSALS

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.”