I have always known that when we meet with someone, we go into the process believing that a consumer proposal is unique to the individual. To emphasize the point, I decided to review 18 consumer proposals that have been filed in our Windsor & Leamington offices in a 60 day period to see just how different each scenario really is. It was an interesting exercise in which I confirmed that each proposal was as unique as the individuals we help.
Of these 18 files, 13 were accepted as filed, however, the other five required a counter offer and additional negotiations with specific creditors. That is part of our job as a consumer proposal administrator; to help both the debtor and the creditor reach a mutually agreed upon settlement.
Looking at the average payment required by the debtor, the dividend rates (the percentage of total debts repaid) to the creditors ranged from as low as 14% to as high as 60%. Why do the payments vary so significantly? Again, this is because each debtor’s situation called for different payment terms. In general, there are certain things creditors look for before accepting a consumer proposal:
- are you offering more money than the creditor would get in a bankruptcy?
- can you afford the payments (or can you afford more)?
- how much do you owe and sometimes more importantly, to whom?
Many creditors want 1/3 of their money back as a starting point, but even if you can’t afford that, they may still be willing to consider a lower proposal if the alternative is worse. If for example they would only receive five cents on the dollar in a bankruptcy, under those conditions even a proposal as low as 14 cents on the dollar seems attractive. On the other hand, if you have some equity in your house and you want to keep your home, your creditors will expect to receive value for that equity. Hence, your payout rate may increase if you have high income or assets.
Sometimes, the best way to illustrate a point is with an example. I have changed the names, but here is a short summary of a few of the consumer proposals I have filed:
Comparison Case 1: Dissenting Creditors
Ms. Andrews filed a $7,200 consumer proposal and the creditors accepted it. A minor creditor voted against the consumer proposal, but since the majority of her creditors agreed to it, it passed. Miss Roberts also filed a $7,200 consumer proposal. but the creditors asked for $12,000. In the end it was settled at $10,500. In Miss Robert’s situation, the majority of creditors asked for more money. However, Miss Roberts did not feel she could afford the full amount the creditor wanted, but she did agree to increase her payment to something she could afford, and the creditors agreed to that settlement.
As you can see, there can be some give and take in the negotiating process.
Comparison Case 2: Income Differences
Both Mr. Ing and Mrs. Ono had $104,000 in debt, and both of their consumer proposals were accepted as filed. Mr. Ing offered $45,000 while Mrs. Ono offered $66,000. Why did Mrs. Ono offer so much more? Her income was higher than Mr. Ing’s and she had equity in her home. She had to offer more than the creditors would receive in a bankruptcy, and therefore, her payout was higher.
Case 3: Lump Sum Consumer Proposal
Ms. Kay had only 1 creditor. Her father was willing to help her out and she offered a lump sum proposal of $18,000 on $100,000 debt. They had tried to work with the creditor on their own first, without success, but now they had concerns that Ms. Kay’s wages would be garnisheed. The creditor voted against the offer, but they were willing to settle for $40,200. Ms. Kay agreed to increase her lump sum payment to $40,000 (with the help of her family) and the consumer proposal was accepted. This was a win-win for both the creditor and Ms. Kay. The creditor will receive their payment in the next month or so and Ms. Kay can now start focusing on her future.
You might wonder why they would agree to a consumer proposal, but they wouldn’t agree to a deal with her directly? In this case, the creditor was Canada Revenue Agency. CRA will not accept informal debt settlements because if they did so for one taxpayer, they would have to do it with everyone.
As you can see, even though these are just a few scenarios, the differences in terms of creditors, payments, affordability and structure vary widely on a case by case basis. Determining what to offer in a consumer proposal takes the skill of a licensed, experienced professional. In the past two years alone I have filed over one-third of all of the consumer proposals filed in Windsor and Leamington, and this breadth of experience is what a good consumer proposal administrator brings to the table to help you deal with your debts.
If you are looking for a consumer proposal administrator in Canada, all of the administrators on this site are known for their reputation and experience. Contact us today for help.