As part of what I do I often get a change to talk with creditors. In speaking with a representative of one of Canada’s large banks, we discussed how they decide whether or not to accept a proposal.
A consumer proposal in Canada is a negotiated settlement between a debtor and their creditors. Each year we file thousands of debt proposals for individuals, so as one of the largest proposal administrators in Ontario, we are always interested in what creditors are looking for in a proposal.
The bank’s representative confirmed that they evaluate all proposals based on “their merits”. Banks based their decision to vote for or against a proposal by looking at the details of each individual case.
One of the benefits of a consumer proposal is that you can keep assets that would otherwise be surrendered in a bankruptcy. In a proposal, you pay out the value of these assets to your creditors. The bank will review the proposal to ensure that the proceeds of the proposal are greater than what they would receive in a bankruptcy. This makes sense. A creditor is not likely to accept a deal that would pay them say 12 cents on the dollar when a bankruptcy would provide them with 17 cents.
Banks want to know that the proposal is reasonable. If they feel you have not offered as much as you could reasonably afford, they may ask for more. No-one wants you to pay so much the proposal can’t be successful in the long run, but at the same time the bank doesn’t want to feel like they are leaving something on the table either.
At Hoyes Michalos, before we file a consumer proposal on your behalf, we review with you your budget to determine what payment you can afford each month. We will only submit a proposal if it is affordable for you, and if it is likely to be accepted by your creditors.
Lastly, every creditor is different, but some banks have a minimum acceptable range of recovery. Some want to recover at least 25%, some one-third, others have no set limits. Since we have filed tens of thousands of consumer proposals since 1999, we know what different creditors expect.
At Hoyes Michalos we combine all these factors to ensure that the proposal you offer works for you financially, and will likely be accepted by the creditors. That’s why we have a 99% acceptance rate for all consumer proposals we file.
If you have more debt than you can repay, a consumer proposal is a great way to make a deal with your creditors.