Proposals can result in debt repayment for as low as 30% of the original amount owing. Your monthly payments are determined based on what you negotiate with your creditors.
There are three factors that affect the deal you can reach:
- Your income and eligible expenses
- Your assets
- Who you owe money to.
Creditors will only accept a consumer proposal if you offer them more than what they would receive in a bankruptcy. To determine what your proposal will cost, your proposal administrator will first calculate the expected realizations in a bankruptcy.
For example, if by declaring bankruptcy you would lose your house with equity of $20,000, your creditors would not generally accept a $10,000 debt proposal. They would prefer that you go bankrupt, so that your house would be sold and they would get their share of the $20,000 proceeds. Similarly if you are required to pay $750 per month in surplus income payments in a bankruptcy for 21 months your creditors will expect to receive at least $16,000 in your proposal.
Your proposal administrator will review your expected bankruptcy payments and compare this to what you can afford to repay each month. They will then recommend you offer your creditors enough such that the total of your monthly payments is slightly more than your creditors would expect if you file bankruptcy.
While the total amount you will pay will be more than you pay in a bankruptcy, your payment terms can be more flexible and this is one of the major advantages of filing a consumer proposal over declaring bankruptcy. If your agreement calls for the payment of $20,000 you can spread the cost of those payments over 2, 3 or even up to 5 years. If your circumstances change you can arrange to pay off your proposal earlier.
There are no “up front”, “hidden” or “set” fees.. All consumer proposal administrators are licensed by the federal government, and the government regulates their fees. In other words, every proposal administrator receives the same fee for the same proposal.
The good news is that the fees come out of your monthly payment, so it’s the creditors that are paying for the cost. If the creditors agree to a proposal of $400 per month, you only pay $400 per month.
Your administrator receives a fee of approximately 20% of the money that is paid to the creditors, but again, the most important fact is that the cost of the proposal is included in your monthly payment; there are no additional costs to you.
Why Would a Creditor Accept a Consumer Proposal?
Good question! If you owe $50,000, why would your creditors accept a deal where you only pay, say, $20,000? The answer is simple: the people you owe money to would rather receive something than nothing.
Here’s the same question, asked another way: what happens to your creditors if they reject your proposal? If they don’t take the deal, your only other option may be to declare personal bankruptcy. If that happens, they will most likely get less, perhaps a lot less, than you offered in the proposal.
So, for the creditors, accepting your proposal is their best option for collecting the most money possible.
In almost all situations, the monthly cost of your consumer proposal payments will be significantly less than your debt payments are today.
Talk to a Consumer Proposal Administrator about your debts and what you can afford. Our appointments are always free and completely confidential. We can help you consolidate your debt and lower your monthly payments. Contact us today.