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If you have already familiarized yourself with the general details of a consumer proposal, then you are likely aware of its benefits. It is an effective way of receiving debt relief without losing assets as you do with a bankruptcy. However, while a consumer proposal is a more sought option than bankruptcy, you need to ensure your creditors will accept the proposal. Here’s how to qualify for a consumer proposal.
A consumer proposal generally allows you to pay back a portion of the debt you owe, such as personal loans, credit cards and other unsecured debts. Its final cost will depend on your income, assets, and sources of your debts.
To qualify for a consumer proposal, you need to ensure your creditors accept the proposal. Creditors generally only accept your consumer proposal under these kinds of circumstances:
Bankruptcy is the most serious debt management solution that exists in Canada. It basically relinquishes you from all your debts and, in exchange, you make a series of payments toward the bankruptcy court. The amount you have to pay your creditors is based mainly on your monthly earnings and the number of people in your household.
So, if your consumer proposal doesn’t give them as much money back as a bankruptcy would, most creditors will deny your offer and wait until you declare bankruptcy instead.
Your consumer proposal’s chances of approval may also depend on how your creditors operate. For instance, many creditors will accept around ⅓ of your total debt amount. So, if you owe them $30,000 in debt, they might agree to a $10,000 repayment. That said, creditors aren’t obligated to accept right away, as they would be with a bankruptcy.
Basically, a consumer proposal is called a “proposal” because a creditor can accept it, deny it or make you a counter offer. Most consumer proposals are rejected when:
As mentioned, there are several different factors that can lead to the rejection of your consumer proposal. For your proposal to be accepted, you’ll normally need to offer:
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.
In order to qualify for a consumer proposal, you need to get the creditors who hold majority (51%) of your debt. As such, constructing an offer that will be appealing to the creditors that hold a minimum of fifty-one percent of your debt can help you qualify for the consumer proposal. This is because the proposal will be in effect as soon as a simple majority of the creditors accept your proposal.
A consumer proposal is a legal process that can only be conducted by a Licensed Insolvency Trustee (LIT). They will facilitate the proposal through the bankruptcy court in your region. Although you will work together, it’s your LIT’s responsibility to handle all negotiations with your creditors on your behalf. They can also offer you advice and direct you toward the best decisions.
Watch out, as some “debt-relief” companies will claim to offer consumer proposals. They are really trying to trick you into paying unnecessary fees. According to law, Licensed Insolvency Trustees must be free of charge and certified by the Government of Canada.
After they review your case, your LIT will draw up your consumer proposal and submit it to your creditors. It should contain a report detailing your personal situation and reasons for financial turmoil. The creditors will then have 45 days to accept or deny the proposal. If one is arranged, they may also make this decision before or during a creditor meeting.
Remember, a number of factors could lead to the approval or denial of your consumer proposal. Generally speaking, here;s when your creditors will accept your proposal:
Make sure to offer your creditors a reasonable proposal. If the majority vote against it in that meeting, their rights will be restored. This means they can start or continue debt collection proceedings against you. This can also happen within 15 days of creditor approval if the court is asked to review your consumer proposal and decides to reject it.
What Happens During A Creditors Meeting?
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.
Generally, creditors prefer consumer proposals as opposed to personal bankruptcy. This is because they will be refunded more of what they are owed. That being said, creditors also usually receive less from a consumer proposal compared to other debt solutions. 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 if they don’t accept your proposal, then creditors are more likely to accept your consumer proposal.
It is a good idea to make sure you have exhausted all other options before filing a consumer proposal. There are always other options, such as a debt consolidation loan or a debt management program. There are countless financial experts that have the qualification necessary to help you deal with your debt.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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