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:
- The 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:
- Confirm you have access to the funds before you make the offer – there is no point offering your creditors money you don’t have.
- 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.
- 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.
- 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.