Consumer Proposal Cost: A Negotiated Debt Settlement
A consumer proposal is a negotiated debt settlement arrangement arranged through a Licensed Insolvency Trustee. A consumer proposal can result in savings of as much as 70-80% however the cost of a proposal is based on your personal situation. The golden rule of a successful consumer proposal is that the cost of a consumer proposal must work for both the debtor and the creditor.
For a creditor to accept a debt proposal, they will want to receive more than they would recover if you file bankruptcy.
For a debtor to succeed with a proposal, the payments must be affordable and reasonable given your financial situation.
The amount you will have to repay will depend on 3 factors:
- your income and any surplus income you would pay in a bankruptcy;
- assets you own that would be surrendered in a bankruptcy, and
- who you owe money to (different creditors expect different consumer proposal percentage recoveries).
While every situation is unique, a consumer proposal can commonly reduce principal repayment to as low as 25% of the original amount owing.
Watch our video below to understand how the cost of a consumer proposal is typically calculated when you meet with a Licensed Insolvency Trustee.
A consumer proposal allows you to settle your debts for less than you owe. What you pay in a consumer proposal is based on what you and your trustee can negotiate with your creditors. The golden rule of a successful proposal is that it must work for both you and your creditors.
You have to be able to afford the payments and your creditors have to feel they are getting enough to vote yes. Typically, this means your creditors want a little more than they would receive in a bankruptcy. This would include any payments you have to make based on your income, any equity in your home, any other assets you might lose in a bankruptcy. Once all this is added up, you will talk to the trustee about how much you can afford to pay each month.
A proposal can last up to five years, so you can spread out your payments over a maximum of 60 months; Let’s look at an example. Mark meets his trustee and finds a bankruptcy would cost him $475 a month for 21 months, or almost $10,000. He decides to offer his creditors $200 a month for 60 months or $12,000 in a consumer proposal. Mark is happy because he pays less each month than in a bankruptcy, and can keep his assets. His creditors vote yes because they earn a little more over time. And Mark pays only what he agrees to in his proposal. He doesn’t pay extra trustee fees. They come out of his negotiated payments. In effect, Mark’s creditors are paying to administer the proposal.
Each situation is different. At Hoyes Michalos we provide you with all of the necessary information to help you calculate the potential cost of a consumer proposal given your specific circumstances.
Call us today and we’ll calculate a payment plan for you.
Try our consumer proposal calculator to see what your payments might be.
Who negotiates Consumer Proposal payment terms?
Proposal payments and terms are negotiated between the debtor and creditor with the help of your licensed insolvency trustee acting as administrator of the proposal. During your debt assessment, the trustee will review your budget and debts and recommend how much to offer your creditors.
Your proposal amount can be paid over a period of up to 5 years, interest free, although lump sum payments are also possible. Consumer proposals can also be paid off early at any time.
Once your debt proposal is accepted you make one, single monthly payment to the trustee.
If your financial circumstances change you may defer up to two payments during a consumer proposal. Miss three payments and the proposal fails. Technically, your consumer proposal is ‘deemed to be annulled’ on the date your third monthly payment became due. If your credit proposal is annulled then your full debts return and your creditors may take action against you again. You do not however, automatically become bankrupt.
If you think you might miss a third payment you do have options available to put in place before your proposal fails. Your trustee can help negotiate and file amended payment terms. As long as these are accepted by the creditors, you can continue with the new proposal terms until completion. If your situation has changed dramatically, you can also choose to file bankruptcy during any proposal.
How does a Consumer Proposal Administrator get paid?
The cost of administering your proposal is included in your single monthly payment.
Consumer proposal administrators are licensed trustees, registered with the federal government under the Bankruptcy and Insolvency Act and as such fees paid to a trustee for administering a consumer proposal are set by legislation. Trustee fees are included in the payment you negotiate with your creditors. If your creditors agree to a deal to accept $350 each month, then that is all you pay.
- no additional fees,
- no up-front fees,
- no set-up fees,
- and no minimum fees.
You do not make any payments until your consumer proposal is officially filed.
Get a free quote based on your situation
Our team of Licensed Insolvency Trustees treat each situation as unique. We know there are no cookie cutter solutions and that is why we have such a high success rate for consumer proposals.
Hoyes Michalos has a 99% acceptance rate for all proposals we file. We understand what creditors are looking for and what debtors need.
We also offer convenient, flexible, pre-authorized payments to help make managing your payments easier. Arrange weekly, bi-weekly or monthly payments, based on what works for you.
More information about the cost of a consumer proposal on our blog:
- Calculating payments in a consumer proposal
- Making a lump sum consumer proposal
- What creditors expect in a consumer proposal
- Making a consumer proposal work with your budget
- Are there typical consumer proposal terms?
Find out how to file a consumer proposal in Canada or contact us for a free consultation.