If you are already familiar with the basic details of a consumer proposal, you are probably aware of the benefits too. A consumer proposal is an effective way to take the positive side of a bankruptcy while minimizing the negative aspect of such an option, such as the loss of property. The key is to create a consumer proposal that your creditors will accept. As this must be accepted by at least 51% of your creditors, a solid proposal is therefore essential to its success.
Consumer Proposal vs. Personal bankruptcy
Generally, creditors prefer consumer proposals to personal bankruptcy because they will be more repaid than they lent. That said, creditors usually receive less than a consumer proposal, compared to other forms of debt relief offered in Canada. It is important to show that you have tried other forms of debt relief without success before, for example, financial tracking, or debt consolidation via debt consolidation companies. If you have a convincing argument and bankruptcy seems to be your only option, creditors are more likely to accept your consumer proposal.
Consumer Proposal and Money Offer to Creditors
Although the consumer proposal is a bit more complicated than declaring bankruptcy, such a proposal will offer you greater personal flexibility. In the case of bankruptcy, creditors have the right to claim all your property with the exception of those who are exempt in your province. If your consumer proposal is accepted, all your assets will be protected from seizure. The more money you are able to offer to your creditors (here’s where flexibility comes in), the more likely your proposal is going to be accepted, allowing you to keep your assets.
Each creditor is different and they accept different proposals based on different characteristics, such as deciding to negotiate a debt settlement or filing a consumer proposal. You want to show some flexibility and you are willing to work with your creditors in negotiations to get you out of debt. Most professionals generally suggest that you offer to pay between 15 and 40 cents for every dollar included in your proposal. By declaring these terms, it will give more confidence to your creditors.
How can a proposal be accepted and then rejected?
The key is to build an offer that will be attractive to creditors who hold a minimum of 51% of your debt. The proposal will be in effect as soon as the majority of creditors accept your proposal. Once this is submitted, it remains for the creditors to decide whether they wish to accept or reject the terms of the proposal. Each creditor is entitled to one vote for every dollar you owe him.
For example, if the total debt you owe is $ 500, and you owe it to 3 different creditors, the creditor to whom you owe $ 180 is entitled to 36% of the votes. The creditor to whom you owe $ 75 is entitled to 15% of the votes and the creditor to whom you owe $ 245 is entitled to 49% of the votes. If the first two creditors accept your proposal, the third one has no choice but to accept it even if in fact, it has rejected it. This is because the first two creditors have 51% of the debts you owe.
A creditor must vote in writing to accept or reject your proposal. Unless a creditor vote against you, no vote will be interpreted in your favor. If a creditor represents about 25% of your debt and votes against your proposal, your trustee will have to schedule a second meeting with the creditors and redo the vote.
You only have to wish a 51% approval of the creditors’ share. Even if a creditor vote against your proposal, depending on how much debt he or she has, the vote will not matter much.
Approach your creditors with your consumer proposal
Although many people try to go to their creditors on their own thinking that it will give them more chances, this is not the case. A consumer proposal is legal action and you can not deal with it informally. You must, therefore, contact a licensed insolvency trustee near you. You must file a consumer proposal in the same way as a bankruptcy declaration.
Be informed before submitting your proposal
Before filing a consumer proposal, you should see what all other debt relief options have to offer. There are several other options, including a debt settlement that you could qualify for. It could also be better for your overall financial situation. There are many professional companies and financial experts who can help you end your debts.