Understanding The Payment Terms Under Your Consumer Proposal
A Consumer Proposal is a legal process that offers an alternative to bankruptcy. It provides an opportunity to reduce your unsecured debt or extend the payment period or even both. These consumer proposal payment terms must be wrapped up within five years and are designed to offer creditors a better return than they would receive in a bankruptcy scenario. In this write-up, we explore the various structures of a Consumer Proposal and the dynamics that make up its payment terms.
1. Fixed Monthly Payments
The most typical format of a Consumer Proposal involves the debtor paying fixed monthly payments over a specified period. This framework is flexible, allowing the debtor to pay off the proposal early if they can increase their monthly installments or make a lump sum payment at any point during the term. The best part? There is no penalty for early repayment.
The Flexibility of Fixed Monthly Payments
The allure of fixed monthly payments lies not just in the predictability of knowing what is due each month, but also in the flexibility to make additional payments. As such, if you find yourself with extra cash, you can make an extra payment towards your Consumer Proposal without any penalty. This can help shorten the term of your Consumer Proposal.
2. Variable Payments
Variable payments are an excellent option for individuals with fluctuating income, such as those who work seasonally. This structure allows for higher payments during peak earning seasons and lower payments during leaner times. However, the variable payment schedule must be clearly defined in the Consumer Proposal.
Structuring Variable Payments
When opting for variable payments, it’s crucial to have a clear schedule of when and how much you’ll be paying. This provides a guideline for both you and your creditors and avoids any confusion or disagreements down the line.
3. Step Up Payments
Step up payments, where payments start low and increase over time, are ideal for those who anticipate their income to rise during the term of the Consumer Proposal. This payment structure needs to clearly define when and by how much the payments will increase.
Planning for Step Up Payments
If you’re expecting a promotion, raise, or any other income increase in the future, planning for step up payments would be a good idea. This allows you to make smaller payments now and larger payments later when your income increases.
4. Step Down Payments
Conversely, for those whose income is expected to decrease over the course of the Proposal, the payments can start larger and decrease over time. As with all other structures, the Consumer Proposal must clearly define when and how the payments will change.
Preparing for Step Down Payments
If you foresee your income decreasing in the future, such as through retirement or a job change, step down payments can help you manage your proposal. You’ll make larger payments while your income is higher and reduce the payments as your income decreases.
5. Lump Sum Payments
In some instances, a Consumer Proposal can be funded through one or more lump sum payments. This is often the case when a third party, like a family member, provides the funds for the proposal on behalf of the debtor.
The Advantage of Lump Sum Payments
Lump sum payments can bring a sense of relief as they can significantly shorten the term of your consumer proposal. However, they require a substantial amount of money upfront, which might not be feasible for everyone.
6. Payments from the Sale of Assets
In certain scenarios, a Consumer Proposal might involve selling assets like a house or other investments. Some or all of the proceeds from the sale are then paid into the proposal. Debtors who promise to sell assets as part of a proposal must consider any tax consequences that may arise.
Considering Asset Sales
Selling an asset to fund a Consumer Proposal can be a sensible decision, especially if you have assets that you no longer need or use. However, it’s important to consider any tax implications that may arise from the sale of an asset.
7. Amendment to an Existing Consumer Proposal
In exceptional circumstances, an existing Consumer Proposal can be amended if a significant change in circumstances necessitates a change in the proposal structure. If an amended proposal is filed, the creditors have the option to vote on whether they agree to the newly proposed terms.
Navigating Proposal Amendments
Amendments to a Consumer Proposal can be a complex process and usually require the guidance of a Licensed Insolvency Trustee. If you find yourself needing to adjust your proposal, it’s crucial to understand the process and its potential implications.
This is a comprehensive overview of the various structures and terms associated with Consumer Proposals. Stay tuned for more posts in this series, where we delve deeper into each structure and examine the pros and cons associated with each. For more information, click here to read the first post in this series.
