Proposal in Bankruptcy

When you cannot pay your debts, you may make a proposal (a payment arrangement) with your creditors to prevent bankruptcy. These are legal proceedings carried out under the Bankruptcy and Insolvency Act, and must be registered with the Office of the Superintendent of Bankruptcy.

Your GST/HST account will not be closed automatically when you file a proposal in bankruptcy. You maintain control of your property during a proposal in bankruptcy. If a trustee is appointed, they do not need to open another program account for access to your property during this period.

It is important that you forward copies of all documentation relating to your proposal in bankruptcy to your tax services office because it may impact your GST/HST account.

A proposal in bankruptcy is not a bankruptcy.

A proposal is when you (as the insolvent debtor) offer to repay, in whole or in part, the amounts owing to your creditors.

There are two types of proposals.

Division I may be filed by:

• the insolvent person;
• a receiver, within the meaning of the Bankruptcy and Insolvency Act, subsection 243(2) but only in relation to an insolvent person's property;
• a liquidator of an insolvent person's property;
• a bankrupt; or
• a trustee of the estate of a bankrupt.

It is determined by the amount of debt and also known as the reorganization proposal.

If a Division I proposal fails because it did not receive approval of creditors or fails after the approved proposal because of defaulted payments, the failure results in Bankruptcy. Then, the Bankruptcy may be effective the date of the proposal or the date of filing the Notice of Intention (whichever comes first), or the annulment date.

You (as the consumer) may file Division II. It is determined by the amount of debt and also known as a consumer proposal.

If a Division II proposal fails, the failure results in restitution of the creditor's rights to collect the debt. The consumer debtor is not deemed bankrupt.