Earlier this month we addressed the question - what are your creditors expecting to receive in a proposal. The next logical step in the negotiation process is to consider how long you should expect to be making payments.
By law, consumer proposals may be up to 60 months long.
The government agency that oversees consumer proposals does not produce public statistics on the average proposal term offered, or the average time taken to complete a proposal.
In our own practice, the average payment term offered is 47 months and the average length of time to actually pay off a consumer proposal is 42 months. The difference lies in the fact that once you have filed a consumer proposal your finances improve to the point that people find that they are able to make a few extra payments to complete their proposal sooner.
How Long Should You Offer?
A more important question to ask when you are considering a consumer proposal is how long a term should you offer?
I am of the opinion that you should ask for 60 months to pay off your proposal. This produces the lowest possible payment over time. Another reason to pick the maximum term of 60 months is if you offer your creditors less than 60 months your creditors might simply ask you to pay the same amount for 60 months instead of the shorter term you have offered. If you start at the maximum term you eliminate one variable – if your creditors want to ask for a change to your offer they may ask you to increase your monthly payment. If your payment is reasonable based on your income and expenses they are less likely to do this.
This does not mean however that you will be 'stuck' with a 60 month proposal if your financial circumstances change.
By law consumer proposals are “open” which means you have the right to pay them off more quickly, which is what most people do.
The exception to the rule of offering a 60 month payment term might be if you expect a lump sum to be available to offer your creditors. Perhaps you expect to receive a bonus soon or proceeds from the sale of an asset. In these circumstances you can make a lump sum or even partial lump sum offer to your creditors. The same rules apply however as to what realization your creditors will expect in total.
Other Payment Considerations
It is also important that you select a trustee that handles enough consumer proposals to be familiar with all of the nuances associated with filing.
- What you want is a trustee that tracks voting patterns for each of the major banks and the government.
- You want a trustee that uses pre-authorized payments.
- You want a trustee that can tell you how many consumer proposals they filed last year, how many were approved as filed, how many were changed by the creditors, how many have already failed.
Your trustee is your expert into negotiating the best deal for you. You want a proposal that will be accepted by your creditors and one you can live with. At Hoyes, Michalos more than half of our files are consumer proposals. We have the experience to help. Contact us to talk about what your proposal options might be.