While the cost of a consumer proposal varies for each person based on their income, assets and debts, typically consumer proposal payments result in settling your debts for around 30-40% on the dollar.
We explain how your trustee, or consumer proposal administrator, helps you determine how much to offer your creditors and what your consumer proposal payments would be.
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What Factors Into Your Consumer Proposal Payments
Part of the consumer proposal process is crafting the plan you will offer your creditors. To determine how much to pay in a consumer proposal your trustee looks at three basic things:
- who you owe money to and how much you owe,
- what, if any assets that you have or what you would have to pay in the event of bankruptcy, and third,
- it depends on your budget and whether or not you can afford the payment.
How to calculate a monthly consumer proposal payment will depend on any one or a combination of those three factors.
What we tell people when we first meet with them is that figuring out what the payment should be is usually one of the last things that we do before we get together to file the documents with the Superintendent of Bankruptcy. As the Trustee, we must be satisfied that your monthly payment is affordable given your family budget, that the creditors will recover more than what they are likely to recover in a personal bankruptcy, and that you are offering enough that we believe will allow your creditors to vote in favour of accepting your proposal.
Everyone’s financial situation is different, so the decision as to how much to offer your creditors really cannot be determined until after we have had an opportunity to review all of the financial information.
How Consumer Proposal Payments Are Calculated
Here’s what your trustee will do as part of the process to calculate your payment before your proposal is prepared and filed.
Step 1: Calculate Expected Recoveries
calculate what the creditors would recover in the event you file bankruptcy. In a bankruptcy for example, the creditors would be entitled to any equity that there may be in a house. As well, in a bankruptcy you could have to repay your creditors additional monies based upon the amount of your income. The more income you have, the more you would be required to pay. This is referred to as Surplus under the Bankruptcy and Insolvency Act. Once the value of your assets and bankruptcy payments is determined, we must be sure that your consumer proposal offers more than the estimated recoveries for your creditors in the event of bankruptcy.
Step 2: Understand Creditor Expectations
We also need to review who your creditors are as some creditors expect more than others. They may have internal policies that require minimum payouts, others will review your budget plan in your proposal and will review specific expenditures to make sure they are satisfied with your efforts.
In almost all cases however, payments in a consumer proposal are less than other debt relief options.
Step 3: Calculate Your Monthly Payment
Finally, the budget needs to be analyzed to make sure that you can afford the monthly payment that would be required in order to get the creditors to accept it. The calculation of your monthly payment is very simple. We take the proposed total payout, based on expected realizations and creditor requirements, and divide it by the number of months in the length of your proposal. In a consumer proposal, the payments can last up to 5 years or 60 months. To get the lowest monthly payment, you would spread the payments over the full 60 months however if you can afford more each month, you can shorten your proposal term or even offer a lump sum payment.
As you can see, determining how much the monthly payment is going to be in a consumer proposal takes some experience in knowing what will work and what won’t. At Hoyes Michalos, our success rate in filing proposals in 99%. In addition, only a licensed Trustee in Bankruptcy is authorized to file a consumer proposal under the Bankruptcy and Insolvency Act.
Yes you can reduce debt by up to 70% although each situation is unique. If you would like to know what your payments might be in a consumer proposal, the consultation process is free. Contact us today so we can help you make a successful proposal to your creditors.