When filing a Consumer Proposal, you propose to pay a portion of the debt that you owe over a specific period of time. One common question that many have is how much does a Consumer Proposal cost?
The terms of a Consumer Proposal can be as varied as the individuals that need them. It is worth mentioning that one or more terms can be combined when formulating a Consumer Proposal. The following is a sample of some different terms that could be included in a Consumer Proposal to creditors but is not intended to be an all-inclusive list.
Lump Sum Offer
- A lump sum offer is often used when an individual has a third party who is willing to offer some of their resources to help settle an individual’s debts.
- Example: A third party is willing to fund $10,000.00 into the proposal to be divided among the unsecured creditors, pending creditor acceptance. No funds are paid by the 3rd party unless creditor acceptance results in a legally binding agreement.
Fixed Monthly Payments
- Fixed monthly payments are the most common type of Consumer Proposal. An offer to pay a set dollar amount every month for a fixed number of months.
- Example: A monthly payment of $350.00 for 60 months
Stepped Payments
- Stepped payments are often used when an individual’s circumstances are going to change over time.
- Example 1: $250.00 for the first 12 months and then $350.00 for the next 24 months and then $400.00 for an additional 24 months.
- Example 2: $1,000.00 per month for Nov, Dec, Jan, Feb $ 150.00 per month for Mar, April, May, June, July, Aug, Sept, Oct and this payment will continue for a period of 4 years
Floating Payments
- Floating Payments are payments that can vary in amount based on a set of criteria. These payments will often have a set minimum payment that can be adjusted based on a future set of circumstances
- Example: Debtor agrees to contribute either half of any monthly income earned above $3,000.00 OR a minimum of $500.00 per month for a period of 60 months. Whichever of the proceeding amounts be the greater. Monthly earnings will be verified by pay stubs.
Full Payment
- Full payment is used when an individual can afford to pay creditors but needs help dealing with interest and penalties
- Example: Debtor agrees to pay a fixed amount each month until the principal is paid in full. All future interest, penalties, and collection actions are stopped as long as the agreed-upon monthly payment is being made.
Percent Payment
- Percent payment is where an individual agrees to pay a fixed monthly payment until a specified amount of the debt has been paid into the proposal.
- Example: The debtor agrees to pay $400.00 per month until 37% of the proven debts have been paid. The actual amount to be repaid will be determined once creditors have filed their claims and supporting account details.
Sale of Assets
- A Sale of assets is often done in a proposal to liquidate an asset where you need more time or to prevent collection activities from reducing the value on an asset (forced sale) or as an incentive for creditors to accept the proposal.
- Example 1: The debtor agrees to sell the summer cottage in the spring and instruct the lawyer to pay the net proceeds from the sale of the asset into the Consumer Proposal for the benefit of creditors. (This allows the debtor to wait until the property is more marketable, in the spring and summer, rather than being forced to list the asset in the off-season and taking a forced sale amount).
- Example 2: The individual agrees to sell or cash an asset that would not normally be available to creditors. The individual might offer to cash their protected RRSPs, pay the taxes on the proceeds, and remit the remaining balance to the creditors in exchange for the creditors releasing them for any remaining debts. The cashing of the RRSPs would be conditional upon the creditors accepting the Consumer Proposal. The decision whether to cash RRSP’s intended for retirement is not a decision to be taken lightly and the pros and cons of such as decision would be discussed during your free consultation.
In order for your Consumer Proposal to be legally binding, a majority of your creditors must agree to the terms established by the trustee. Once the terms are agreed upon, you will begin making payments to your trustee for distribution to your creditors. Generally, in order for your proposal to be accepted, your trustee must offer your creditors more money than they would receive if you were to file Bankruptcy.
In Conclusion: The calculation of how much a Consumer Proposal will cost is very much unique to each individual. When you meet with a trustee, he or she will sit down with you and review your financial situation in detail. Most trustees offer this initial consultation at no charge. Meeting with a trustee gives you the opportunity to find out the terms of a Consumer Proposal, to see examples of credit proposals and payment terms examples. You can also find out the pros and cons of a Consumer Proposal. Most importantly, together you will be able to review all available options and decide which course is best for you.
