If you’re considering a consumer proposal as a solution to an overwhelming debt problem, you want to make it a home run. You undoubtedly want the proposal to be accepted by your creditors, and to position yourself for a sound financial future.
Here are my four key steps to a successful consumer proposal:
1. The Preparation
Before all else, meet with a Licensed Insolvency Trustee for help. A Licensed Insolvency Trustee is the only person in Canada who is licensed by the federal government to help prepare, file, and administer a consumer proposal.
Explain your situation to your trustee by providing as much information as possible. Be honest; the more your trustee understands your finances, the better positioned they will be to advise you and prepare a successful proposal.
The trustee will ask some questions about your regular income, expenses, debts, and your assets. This gives the trustee a better understanding of what led to your financially difficulty and what your plans for the future are.
To enter this meeting well prepared, it would be beneficial if you obtain an up-to-date copy of your credit report prior to. You could also come with recent pay stubs, or a bank statement, appraisals or an estimate value of your assets is beneficial to bring as well. All of this information together is important knowledge for your trustee to have to ensure they’re proposing the best solution possible for your unique situation.
If you have tax debts, you’ll want to ensure that you’ve filed all outstanding tax returns. If you are self-employed, prepare your books and records as best as you can. This means showing an up-to-date profit vs. loss statement and company balance sheet.
2. The Acceptance
Once the trustee understands your situation, the trustee can advise you on what they believe a fair and reasonable proposal (for you and for your creditors) would look like.
As soon as the proposal is filed and submitted to your creditors, each creditor has a chance to review the information. They have 45 days to request a meeting if they wish. They’ll have the opportunity to vote yes or no. The weight of their vote is determined based on how much money you owe each of them. Here are a few things they’ll likely look for prior to deciding on your proposal:
- How much of the debt you’re offering to repay
- Whether or not the repayment terms look reasonable in respect to your regular budget
- If you’ve previously made an effort to repay your debt, and what caused your difficulty
- Whether or not there are better alternatives*
Most people considering a consumer proposal have already explored alternatives and have decided that either a bankruptcy or consumer proposal is the only practical option given their situation. This provides a lot of leverage to your proposal’s acceptance because a consumer proposal is better for your creditors. Creditors at least receive some repayment through a consumer proposal, but they don’t receive anything in a bankruptcy.
Denied Consumer Proposal
On rare occasions where lenders do not accept a proposal, the reasons provided typically are:
- They have reason to believe the information provided is either inaccurate, or incomplete
- The proposal option won’t provide them with a significant benefit over bankruptcy
- They have reason to believe you can reasonably afford to repay a little more than what’s being offered
To ensure the best chance of acceptance, do your best to ensure the information is accurate and complete. Offering a fair repayment the first time around is always best. Make sure you’re cutting the unnecessary expenses from your monthly budget before coming up with that fair number.
3. The Payments
As someone who has been preparing proposals for quite some time, it’s clear that the higher percentage of debt you’re offering to repay, the better your chances of acceptance are. What you’re offering also has to make sense practically, and also be fair to you as well.
Think about what you’re offering and the length of time it’s being offered over. Sure, being short $300 a month for a few months doesn’t seem too bad, but think about it long-term. Can you do without that $300 a month over the next four years? If you’re planning on starting a family, going to school, retiring, or making any major career changes, consider that when preparing your offer amount. It’s also important to notify your trustee of these potential changes so they can plan the proposal with that knowledge in mind.
There’s no sense in trying to offer something that you’ll struggle to repay. Your trustee will help ensure the payment terms being offered fit within a workable budget to give you a greater chance of success. What’s important to keep in mind with a consumer proposal is that you can never let your payments fall three months behind. If they do, your proposal is cancelled and your creditor’s right to take action against you is reinstated.
With a low, workable payment in your budget (and no interest to pay), your finances will be much easier to handle. There’s a high chance of you being able to get ahead of your consumer proposal payments and save a little for a rainy day.
4. The Future
One of the best rules with a proposal is that once it’s accepted, it’s accepted. That means it’s binding to both the creditors and yourself. Creditors can’t come back at a later date in an effort to renegotiate terms. There’s also no rule saying you can’t pay it off faster than originally planned, so if you can, you have the ability to do so.
So, throughout your proposal try and increase your chance of success by getting ahead on your debt repayments. If you get a bonus, over-time hours, or windfalls, consider paying more.
Remember: there’s no early repayment penalty.
Paying off a proposal early can be good for credit rebuilding too. The note placed on your credit report indicating you filed a consumer proposal stays there for three years after it’s completion. The faster you pay it, the earlier it’s removed from your credit report.
As part of filing a consumer proposal, you’re required to attend two credit counselling sessions. These sessions are with a certified credit counsellor and are extremely important for your financial future. There’s no additional cost for these sessions. They’re provided by the government to help you find a future without debt. The counsellors provide you with advice on money management, budgeting, credit rebuilding, and saving for your future.
Once your proposal is complete, check your credit report again. Ensure all of the information on there is accurate. Once you’ve completed that check, you’re on your way to a debt-free future.