Consumer Proposals in Canada After the 2009 Legislative Amendments to the Bankruptcy and Insolvency Act

by Vyacheslav Mikhed and Barry Scholnick

March 2015


Note: While abstracts are available in both English and French, some research papers are only available in their original language. This document is only available in English.

Abstract

  • This paper examines the impact of the 2009 legislative reforms to the Canadian Bankruptcy and Insolvency Act (BIA) as they relate to Consumer (Division II) Proposals.
  • Consumer Proposals are an Insolvency process in Canada under which creditors agree that debtors can renegotiate debt contracts (e.g. reduce amounts owing and/or delay payment schedules).
  • The main 2009 change to the BIA as it relates to Consumer (Division II) Proposals, consisted of the increase in the Net Debt (total debt minus mortgage debt on principal residence) ceiling from $75,000 to $250,000. In practice, this allowed debtors with higher net debts to access the relatively inexpensive and uncomplicated Division II proposal system, rather than having to access other forms of insolvency (e.g. the Division I system, which imposes higher administrative costs to filing) or stay outside the insolvency system.
  • In relation to the number of filings, we find there was a significant increase in the quantity of Division II proposals after the 2009 reforms, by individuals who would have been previously ineligible to file a consumer proposal. Subsequent to the 2009 reforms, most of these new proposal filers had net debts (total debt minus mortgage debt on principal residence) in the $75,000 to $150,000 range, rather than in the $150,000 to $250,000 range.
  • In relation to the terms of Division II proposals by individuals who would have been previously ineligible to file, we find those who submitted after 2009, had a lower relative payment agreed to by their creditors (“cents on the dollar”), but a higher absolute payment agreed to by their creditors (“total dollar amounts”).
  • In relation to the outcome of proposals over the life of the proposal agreement (i.e. whether the debtor complied with the proposal agreement over time), we find the 2009 changes did not have any economically significant impact on the various outcomes.

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