The concept of filing a consumer proposal is that you’re asking your creditors to reduce the size of the debt you have with them and allow you time to pay back what you can reasonably afford to pay back.
How much will your consumer proposal payments be?
As a general rule, most consumer proposals result in a debt repayment rate of 30-35%. However your debt is unique to you and therefore each consumer proposal filed is unique. No two consumer proposals will ever be entirely the same. As such there is no magic fixed number that will work to determine the cost of any consumer proposal.
Other than the size of the debt you have, there are a number of factors creditors consider before agreeing to a consumer proposal. It’s therefore not impossible to see a situation where someone that owes $30,000 could pay less back than someone that owes $20,000.
At your consultation, the trustee will review your situation in detail with you to determine what things creditors will look for. This list is not exhaustive, but the key things a creditor will typically consider include:
- Does the proposal provide a greater benefit than bankruptcy? – The amount offered in a Consumer Proposal has to provide the creditors a greater return on the debt than they’d receive if you were to simply just file for bankruptcy. Out of all the considerations, this is probably the most important. The “cost” of filing bankruptcy can be influenced by many things so the trustee will help to determine what amount has to be repaid in the proposal to make it more attractive to the creditors than the bankruptcy.
- Have you filed a consumer proposal or bankruptcy before? – If you’ve previously filed a bankruptcy or consumer proposal, the creditors might expect you to offer more of the debt back this time around.
- Cost Analysis – Some creditors might consider what it will cost them to keep the account active whilst the consumer proposal is running versus writing the debt off now if you were to go bankrupt. They might not want to hold the account open for up to five years if they’re only getting back slightly more than they’d receive in a bankruptcy.
- Are your proposal payments reasonable? – Based on your typical monthly budget, can you afford to keep up with the proposal you’re offering. If your income is unstable or you’re employment situation is uncertain, it could be risky for a creditor to agree to a consumer proposal over a long period of time. At the same time, are your payments too low given your income? Would your creditors expect you to be able to pay more?
- Type & size of debt – Some creditors might factor into their decision the types of debts you have and whether or not all or most of the debt is just with one particular creditor. Each creditor will receive one vote in the proposal for each dollar you owe them, so the more votes a creditor has, the more influence they can have in the approval of a consumer proposal.
- Expectation of 30-50% – If none of the above factors are a major determining factor for the creditors, at the very least, they may typically be looking for something in the region of between 30 to 50% of the debt to be repaid depending on the creditor.
When determining whether or not to accept a consumer proposal, your creditors have 45 days from filing to decide. If creditors do not respond, they will be bound by the decision of the creditors that do. If your proposal is accepted, it’s binding on both you and your creditors. You will now be required to pay the terms you offered.
A consumer proposal is a great option for those with assets they would like to protect or individuals who may have high personal or family income. Find a local bankruptcy trustee in Ontario if you are having trouble paying your debts and would like to avoid filing bankruptcy.