When you have reviewed all the consumer proposal basics, you can see how a consumer proposal offers a good alternative to filing for bankruptcy, as it has less severe disadvantages, such as asset loss that bankruptcy has. When you decide to move forward with the process, the biggest question is, will they accept my consumer proposal? This depends on how your proposal is created.
It is recommended that you have your trustee help design your proposal for best chance at acceptance, but remember they try to get creditors the most possible. With that said, you want to target the creditors holding 51% or more of your total debt. If accepted by 51% of creditors you owe, the other credits are obligated to agree. That is why creating an acceptable proposal is important.
Why Are Consumer Proposals Accepted by Creditors?
Usually, consumer proposals are only pursued by those faced with personal bankruptcy. Therefore, creditors prefer accepting a consumer proposal as a last resort because they receive at least a portion of what is owed. Although, creditors usually collect scientifically less amounts than with other types of debt relief programs in Canada. You should show that other options have been tried, or at least considered, including debt consolidation or credit counselling, but did not work. When creditors are shown your only other option would be to file bankruptcy, they are more incline to accept a proposal request.
How Much Should I Offer Creditors in My Consumer Proposal?
The answer here is not as straight forward compared to bankruptcy, as the consumer proposal has more flexibility. When filing bankruptcy, the creditors are able to claim any of your assets that are not exempt from bankruptcy within your territory or province. An advantage of a consumer proposal includes assets being protected from being seized. However, the more you can afford to offer creditors, the higher chance of the proposal being accepted, without having to loss assets.
From submitting a consumer proposal to negotiating debt settlements, no program is a ‘one-size-fits-all’ offer that all creditors will accept. For the best chances, it is recommended by most professionals that you offer at minimum of 15% to 40% of your owed debt on the consumer proposal. This indicates your willing to pay off what you can to get out of debt, making the creditors more likely to agree to the negotiated terms.
In any situation, your first step is to create an offer that creditors holding 51% of your debt will find appealing. If accepted by the majority holders, the simple majority are obligated to accept your terms as well. After submitting the consumer proposal, each creditor will vote to accept or reject the offer. For each dollar you owe a creditor, they get one vote. For example, if total debt equals $1,000 and you have three different creditors, the creditor you owe $360 has 360 votes, the creditor you owe $150 has 150 votes, and the creditor you owe $490 has 490 votes. Therefore, even if the creditor with the largest balance rejects your proposal, if the other two creditors accept, they must abide by the terms, as the other two creditors represent 51% of your debt and accepted the agreement.
Additionally, if a creditor’s vote of rejection is not in writing, it is considered a vote in favor of the agreement. If creditors that represent at least 25% of your total debt vote against the consumer proposal, the trustee schedule’s a meeting with them, at which time they will cast votes again. At this time, if more than 51% of creditors submit approving votes, then your consumer proposal will go through, even if there are creditors whom rejected it.
Would I Have a Better Chance Getting My Consumer Proposal Accepted on My Own?
A consumer proposal is a legally binding agreement, because of this, creditors do not accept them without going through the legal process. A consumer proposal must be filed in the same courts as a bankruptcy, through a licensed bankruptcy trustee located in your local territory or province.
What to Know Before Filing?
Prior to filing your consumer proposal, you should ensure that a better debt relief program is not available. There may be a way out of debt and save money without damaging your credit for 3 to 5+ years. For example, you might qualify for debt settlement instead, which has a less severe impact on credit scores.
To learn more, fill out our debt relief form and we will get back with you to schedule a no-obligation, free consultation to help determine your best option.
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