Will my Creditors Accept my Consumer Proposal?

Will my Creditors Accept my Consumer Proposal?

Written by Caitlin Wood
Last Updated July 12, 2019

If you have already familiarized yourself with the general details of a consumer proposal, then you are likely aware of its benefits. A consumer proposal is an effective way of taking advantage of the positive side of bankruptcy while minimizing the negatives, such as the loss of assets. The key here is to craft a consumer proposal that your creditors will accept. Considering that for a consumer proposal to be accepted by fifty-one percent of creditors, designing a strong proposal is critical to its success.

Learn more about how to decide when a consumer proposal is the right option.

Consumer Proposal vs. Personal Bankruptcy

Generally, creditors prefer consumer proposals as opposed to personal bankruptcy because they will be refunded more of what they are owed (read this article to compare a consumer proposal to a bankruptcy). That being said, creditors also usually receive less from a consumer proposal compared to other forms of debt solutions offered in Canada. It is important to be able to show that you have already tried other debt solutions without any success, for example, credit counselling and debt consolidation. If you can make a convincing argument that personal bankruptcy is your only option, then creditors are more likely to accept your consumer proposal.

Consumer Proposals and Offering Money to Creditors

Although consumer proposals are somewhat more complicated than declaring bankruptcy, such a proposal will afford you more personal flexibility. In the case of bankruptcy, creditors have the right to claim all of your assets with the exception of those exempt in your particular province. If your consumer proposal is accepted, all of your assets are protected from seizure. The more money you are able to offer your creditors (this is where flexibility comes in), the more likely the proposal will be accepted, resulting in allowing you keep all of your assets.

Every creditor is different and the simple truth is that creditors accept different proposals based on different features, such as, deciding to negotiate a debt settlement or filing a consumer proposal. You want to show that you’re willing to work with your creditors by showing some flexibility in negotiating in order to get out your debt. Most experts will generally recommend that you offer to pay between fifteen and forty cents on the dollar in your proposal. Stating these terms will put more confidence in the eyes of creditors.

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How is a Proposal Accepted for Rejected?

The key is to construct an offer that will be appealing to the creditors that hold a minimum of fifty-one percent of your debt. This is because the proposal will be in effect as soon as a simple majority of the creditors accept your proposal. Once the proposal is submitted, it is then up to the creditors to decide whether they wish to accept or reject the terms of the proposal. Each creditor has the right to one vote for every dollar that you owe to that creditor.

For example, if the total debt you owe is five hundred dollars, and that is owed to three creditors, the creditor to which you owe one hundred eighty dollars receives thirty-six percent of the votes.  The creditor to which you owe seventy-five dollars receives fifteen percent, and the creditor that you owe two hundred and forty-five dollars to, owns forty-nine percent of votes. If the first two creditors decide to accept your proposal, then the third creditor must still accept your proposal even if, in actuality, they rejected your proposal. This is because the first two creditors in this example make up fifty-one percent of the debt that you owe.

A creditor must vote in writing in order to reject your proposal. Unless a creditor votes against your proposal, the lack of vote a will be interpreted as being in favour of your proposal. If a creditor were representing around twenty-five percent of your debt and directly voted against your proposal, your trustee would then schedule a meeting with your creditors when votes would be cast again. Essentially, you just have to hope for a fifty-one percent approval at the meeting of your creditors. Even if some creditors vote against your proposal, depending on the weight they carry, their votes could be of relatively little importance.

Approaching Creditors with your Consumer Proposal

Although a lot of people try to approach creditors on their own thinking this will improve their chances, this is not the case. That is because this process cannot be carried out informally; a consumer proposal is a binding legal agreement. If the proposal is not filed properly, creditors will not accept your proposal. What you need to do is contact a licensed bankruptcy trustee located in your province or territory. This is because you file a consumer proposal the same way you would file for bankruptcy.

Be Informed Before Filing your Proposal

It is a good ideal to make sure you have exhausted all other options for getting out of debt before filing a consumer proposal. There are always other options, such as seeing whether you qualify for a debt settlement. This could actually be better for your overall financial help. There are countless financial experts and companies that have the qualification necessary to help you deal with your debt in the best way possible.

Have you decided that a consume proposal is your best option?

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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