If you have already gone through the basic details of a consumer proposal, then you understand that a consumer proposal is a great way to take advantage of many of the advantages of bankruptcy without the severe drawbacks such as the loss of assets you must endure during the bankruptcy process. As you put together your consumer proposal, however, you will want to design it in such a way that your creditors will accept it. In order for a consumer proposal to be accepted, 51% of your creditors must agree to it, so creating an acceptable proposal is absolutely crucial.
Why Do Creditors Accept a Consumer Proposal Anyway?
Most creditors prefer a consumer proposal to personal bankruptcy because they receive more of what they are owed. However, creditors typically receive less from a consumer proposal than they would from one of the other debt solutions available to Canadians. The key, therefore, is to show that you have already tried credit counselling, debt consolidation, or other debt solutions without any success. If you can show that bankruptcy is the only other option for solving your financial problems, your creditors will be more willing to accept your consumer proposal.
How Much Money Should I Offer to My Creditors to Improve the Chances of My Consumer Proposal Being Accepted?
This can be a tricky question to answer because there is more flexibility in what you can offer in a consumer proposal than in a bankruptcy. In bankruptcy, your creditors can make a claim on all your assets except those that are specifically exempted from bankruptcy in your province or territory. All of your assets are protected from seizure when your consumer proposal is accepted, and the more you can offer your creditors, the greater the likelihood that they will accept your proposal, thereby allowing you to keep all your assets.
Whether you choose to negotiate a debt settlement or file a consumer proposal, the simple fact is that there is no one-size-fits-all offer that is acceptable to every creditor. Generally speaking, most experts recommend that you offer to pay at least 15–40 cents on the dollar to your creditors in your consumer proposal. This amount will show your creditors that you are willing to work with them to get out of your debt, and that will make them more willing to agree to the terms you negotiate.
In any case, you will need to put together an offer that will appeal to the creditors who hold at least 51 percent of your debt because the proposal is in force for all once a simple majority of creditors accept it. When the proposal is submitted to your creditors, they will all vote on whether to accept or reject the proposal. Each creditor gets one vote for every dollar that you owe said creditor. For instance, if your total debt is $100 and is owed to three creditors, the creditor to whom you owe $36 gets 36 votes, the creditor to whom you owe $15 gets 15 votes, and the creditor to whom you owe $49 gets 49 votes. If the first two creditors accept your proposal, then the third creditor must abide by it even if he or she has rejected the proposal. That is because creditors representing 51 percent ($51 in the above example) of your debt have signed off on the agreement.
Unless a creditor votes in writing to reject the proposal, his or her vote is counted as a vote in favor of the agreement. When creditors representing 25 percent of your debt specifically vote against the proposal, your trustee will schedule a meeting of your creditors at which votes will be cast again. As long as you get the 51 percent approval at the meeting of your creditors, the proposal will still go through even though some of your creditors are against it.
Will My Creditors Be More Willing to Accept My Consumer Proposal if I Approach Them on My Own?
The answer to this question is no. Because a consumer proposal is a binding legal agreement, your creditors will not accept a proposal if it is not filed properly. You file a consumer proposal the same way that you file for bankruptcy, namely, by contacting a licensed bankruptcy trustee in your province or territory.
Before You File
Before you file a consumer proposal, you want to make sure that there is not a better solution that will help get you out of debt without a drastically negative impact on your credit. For example, you may qualify for a debt settlement, which may be better for your credit rating. Fill out the debt relief form for a free, no-obligation consultation that will help you determine which debt relief option is right for you.