Can I make a Lump Sum Proposal Offer to my Creditors?

| Category: Consumer Proposal in Ontario
Category: Consumer Proposal in Ontario | (2) comments

Consumer proposals come in all shapes and sizes, including the not too common “lump sum payment” variety.

Most consumer proposals in Ontario are based on a simple monthly payment format. The person filing the proposal will make monthly payments into their proposal for the benefit of their unsecured creditors. The payments are made to a Consumer Proposal Administrator (a licensed trustee in bankruptcy) who will disburse them to the debtor’s creditors on a regular basis (every 3, 6 or possibly 12 months).

It is equally valid to offer your creditors a single (lump sum) payment. The advantages of a single payment include:

  • lump sum proposalThe quickest solution (your proposal is complete once approved and you pay)
  • The easiest to understand
  • Creditors will accept a lower repayment today, rather than waiting up to 5 years for monthly payments

The complicating factor for a lump sum proposal is access to money. Most people in financial distress don’t have a large amount of money available to fund a lump sum offer. Instead the funds usually come from family or friends, remortgaging a house, possibly selling a specific asset or cashing out an investment.

Here are a couple of tips if you are considering a lump sum proposal:

  1. Confirm you have access to the funds before you make the offer – there is no point offering your creditors money you don’t have.
  2. Do not accept any funds if you are borrowing, or refinance your house, sell that asset, or cash out your investment until you know your creditors have accepted your proposal.
  3. A standard clause in the proposal usually reads, “Payment will be made to the Administrator within 30 days of Court approval (or deemed Court approval) of the proposal.” Only make the lump sum payment to the trustee once you have received Court approval.
  4. You will likely be required to pay something nominal, say $50 or $100 per month into the proposal while the voting process takes place. This is actually for your benefit. The law requires a proposal to be cancelled if it falls 3 months behind in its payments. Lump sums may not be payable until month 4 which means the proposal is cancelled before you have to pay, unless you have a clause that requires small monthly payments too.

Something else to keep in mind, you have the right to repay or pay off a proposal at any time. So even if you set up a consumer proposal based on a monthly payment plan, if you come into some money, you can give your trustee a lump sum payment at any time to pay it off, or simply reduce your future payments.

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  1. donna

    Hi. I owe about 26K of unsecured debt and was weighting my options. I will be getting money From my brother (about 7K) to settle my debt. should just contact each creditor and offer 30% of the debt or just file a CP for about 6K. which option should i go with?
    thanks again, great article..

    Reply
    1. J. Douglas Hoyes, Trustee

      Hi Donna. Both options may work. It depends on how many creditors you have, and whether or not they are willing to accept a deal.

      If you have $7,000, you could contact each creditor and offer 25 cents on the dollar as a full and final settlement. You would want to get that in writing from them, and you only want to pay them if ALL of them agree to the deal. It may not be in your best interests to pay off some of your debt, but still have the remainder outstanding.

      That’s why a consumer proposal may be a better option. Your consumer proposal administrator files the proposal offering a lump sum payment of $7,000, and if the proposal is accepted, ALL of the creditors get the same deal. You don’t have to worry about one of them not be included once it’s accepted. It also saves you the hassle of trying to work out separate deals with individual creditors.

      I would suggest you contact a licensed insolvency trustee to review your situation and then you can decide which option would work best for you.

      Reply

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