Negotiating Consumer Proposals – What Your Creditors Expect
In Canada, you’re presented with many methods to get out of debt. One of these is a consumer proposal, which is a legally binding agreement between you and your creditors. It’s a way for you to formally negotiate new terms and come to an arrangement that makes it easier for you to repay your debts. In most cases, consumer proposals are designed to help you reduce debt repayments by only paying a percentage of what you owe. This is why they’re used by people who don’t have the means to repay the total sum of their debts. A consumer proposal helps you pay what you can afford while avoiding bankruptcy at the same time.
The process by which you file a consumer proposal hinges on one key aspect: negotiating with your creditors. If they don’t agree with what you’re putting forward, your proposal will be denied, and you’re back to square one. This is an issue for multiple reasons. Firstly, you still pay the admin fees for the consumer proposal, meaning you lose money. Secondly, you still have to find a way to repay all of your debts. Thirdly, your only option after this is to go bankrupt, which nobody should ever want.
So, you need to negotiate your consumer proposal as effectively as possible, ensuring that it gets approved by your creditors. Here are some key things to know regarding the process:
How much should you offer to pay?
Essentially, the entire negotiation hinges on the answer to this question. After all, your creditors are only interested in what you’re offering them. If they feel like you’re trying to withhold money, they won’t vote in favour.
This begs the question: how much should you offer?
Well, there are a couple of main things to consider when negotiating consumer proposals:
- How much money would your creditors receive if you went bankrupt?
- How much can you conceivably afford to pay them?
Now, when you file a consumer proposal, you will have to hire a Licensed Insolvency Trustee (LIT). They are also responsible for filing bankruptcies, which means they can figure out how much you’d pay if you went bankrupt. This sets the bar for your offer – realistically, you need to offer your creditors more than this figure. If you calculate that you’re unable to pay more than that, then a consumer proposal isn’t going to work.
However, if you run the numbers and believe you’re financially capable of making an offer above this, you can start working out how much to pay. Typically, most creditors and lenders will be looking for at least a third of your total debts to them.
E.g. You owe $90,000, so they’d be looking for at least $30,000 from you.
Of course, it all depends on the creditor, but 33% of your debts is a good place to start – provided you still offer more than what they’d get from a bankruptcy.
Can creditors provide a counter-offer?
Technically, yes, they can. However, this is a rare occurrence as most creditors will accept your proposal provided it is a good one. Think about it logically, your LIT will not file a proposal that doesn’t include a legitimately good offer. So, creditors are usually happy with what you put on the table.
If they’re not, they have 45 days to call a meeting of creditors and negotiate. This isn’t a physical meeting as it usually takes place online or via email/fax. Interestingly, counter-offers can only be made when these meetings are called. What’s more, you need one or more creditor that’s owed at least 25% of your debts to call the meeting.
E.g. If you owe $90,000, you’d need creditors that are owed at least $22,500 to come forward and demand a meeting to make counter-offers.
Why would a creditor want to negotiate? Two reasons:
- They feel your offer is too small, particularly if you owe them a lot more money than everyone else.
- You didn’t act in good faith when borrowing the money. For example, you applied for a loan to pay for home repairs but used the money to get yourself a flashy new car.
At this stage, you’ll listen to their proposed offers and come to an agreement where everyone is happy. Creditors will then vote on the outcome of the proposal, with each vote being the equivalent of $1 of debt. Therefore, some creditors may hold more power than others.
For your proposal to be approved, you need over 50% of the votes in your favour. Going back to our $90,000 example, you’d need over $45,000 in votes. Let’s say you have four creditors and each one is owed $22,500, you’d need three of their votes for the motion to pass. On the other hand, imagine you have four creditors and one is owed $50,000, one is owed $20,000, and two are owed $10,000 each. Here, the creditor that controls $50,000 of your debts basically decides what happens. If they vote in favour, it doesn’t matter if the other three vote against.
Who handles all the negotiations?
You and your trustee will work together to negotiate with creditors. The offer will ultimately revolve around what you can pay, but your trustee works as the middle-man between you and the creditors. They handle all formal communications and act as your mouthpiece through the negotiations. Of course, they also offer advice to ensure you make the best decision.
It’s important to go directly to an LIT if you need a consumer proposal. Some debt-relief agencies will claim to offer this service, but it can only be carried out by an LIT. So, they end up connecting you with one, but this leads to excessive admin charges by the debt-relief agency. Lucky for you, we’re a fully Licensed Insolvency Trustee, so we can handle everything for a fair price.
Contact us today to book a consultation
Book a consultation with an LIT by calling us today. Alternatively, you can fill in our online evaluation form and we will get back to you ASAP. We can help you throughout the consumer proposal process, as well as providing other debt-relief tips.
What is a Registered Consumer Proposal?
What is a registered consumer proposal in Canada? This may seem like a confusing topic, but it’s more straightforward thank you think. A basic definition of a consumer proposal is that it’s an offering you make to creditors with the aim of paying your debts. Typically, it includes proposing a percentage of your debts that you’re willing to pay. They can either accept or deny your proposal, depending on how they view the offer.
So, where does the term ‘registered’ factor into things? Effectively, it’s all to do with the legality of a consumer proposal. Many other debt-relief methods may claim to be similar to consumer proposals but aren’t technically a legitimate one. Don’t worry if you’re confused, it shall all make sense in this guide.
What is a registered consumer proposal?
In Canada, consumer proposals have to be registered. This means they are submitted to the courts, and you have signed all of the documents sent out. The federal government files your proposal, and this triggers the beginning of proceedings. From this point on, you no longer have to pay your debts until the consumer proposal has been either officially approved or denied. At this stage, you can say that your consumer proposal has been registered as it is now recorded in government records.
What sets a registered consumer proposal apart from other debt-relief options?
You will easily encounter lots of other options to be rid of your debts. Many credit counselling agencies in Canada will offer services like debt settlements, debt restructuring, or they might even call them a debt proposal. The difference between a registered consumer proposal and other methods is that it is a legally binding process. You have to go through the courts to have your proposal approved, which can be both an advantage and a disadvantage. The advantage is you only need a majority of votes from your creditors to succeed, the disadvantage is that it can take a long time, and you also need court approval.
Another key difference is that a consumer proposal in Canada can only be filed by a Licensed Insolvency Trustee. This is one of the most important things to remember as you will not have a registered consumer proposal without a trustee. If any company offers you a consumer proposal (or anything that sounds similar), but they aren’t licensed, then one of two things will happen:
- They outsource the services to an LIT, and will charge you a lot for the process. This costs far more than if you find a trustee directly.
- They will provide you with an informal proposal, which is basically a debt-relief service that isn’t registered or legally-binding. It can still be effective, but if you are actively looking for a formal consumer proposal, then the service won’t benefit you.
Finally, there are more rules and regulations involved in a registered/formal consumer proposal compared to other methods. Again, these can be both to your advantage and disadvantage:
- Your consumer proposal will put you on a debt repayment plan that lasts up to 5 years max. This can be good as it means you have 5 years to clear your debts.
- Once your proposal is registered, you get protection from credit collectors and no longer have to make payments until the consumer proposal has been sorted out.
- You are given the lowest credit rating, and this stays on your file for 3 years following the completion of your consumer proposal.
- The length of your proposal can be extended, or you can have it cancelled if you miss your agreed payments to creditors.
Hopefully, this has helped clear up a few of the key questions you had regarding registered consumer proposal. As a short summary, they are consumer proposals carried out by an LIT and registered by the federal government. These proposals are legally-binding and require court approval, anything that doesn’t go through this process is not considered a registered proposal. You may also hear them referred to as formal debt proposals or formal consumer proposals.
How do you get a registered consumer proposal?
We touched upon it above, and the only way you can get a registered consumer proposal is to find a Licensed Insolvency Trustee (LIT). As it happens, we can help you with your consumer proposal as we are a Licensed Insolvency Trustee in Canada. Feel free to call us today to learn more about what we do and how we will help.
Once you have approached your LIT, they will work alongside you to formulate the proposal. This includes looking at your financial data and working out how much you can afford to pay your creditors. When a percentage of your debts has been agreed upon, they will collect all the essential paperwork and file it online. Now, the proposal is formally registered and your protection kicks in. From here, the rest of the process will take you to a point where your proposal is either accepted or denied.
Do I need a formal consumer proposal?
This question is hard to answer as it varies from person to person. A formal or registered consumer proposal is ideal if you have tried other ideas and seen no relief. It’s a legally-binding way to get your creditors to reduce your debt payments and make life more manageable. It is also a great step to take to avoid bankruptcy.
However, informal debt proposals do have a place. They usually come in the form of a debt management plan where you contact creditors and try to arrange new terms. This works well if you have a couple of creditors on your back, and you can sort it all out quickly. Plus, if you have the ability to pay all of your debts by altering the terms slightly, this is a great method. Still, if you want the extra protection from a registered consumer proposal – and it’s impossible to repay all of your debts – then the informal approach may not work.
Speak to a Licensed Insolvency Trustee today!
Give us a call to learn more about consumer proposal and if one is a viable option for you. We’re also licensed credit counsellors, so we can provide plenty of advice on how to be debt-free.
Call us now or fill in our evaluation form to book your first consultation!
How to Get Help with Debt
Are you lost in a confusion of debt? Befuddled as to the best route out of your financial problems? You are not alone, as this is how many people feel when they consider the debt relief options available. In fact, to the uninitiated, the road to becoming debt-free can seem like a confusion of paths, all leading in different directions!
The good news is that there is a way that you can make sense of all the options—a way of mapping the right route to debt freedom.
However, before you can chart this map, you must ask yourself four key searching questions. The answers being used to point you in the best direction for your specific debt situation.
These questions are:
- How much debt have I got?
- Can I afford to repay the entire debt?
- What are the debt relief options open to me?
- Where can I go to find help and support with my debt?
You will also be pleased to find detailed explanations of these questions below. Therefore allowing you to complete them as accurately as possible and so get on the right road out of debt.
How much debt have I got?
You may not want to, but sitting down and working out exactly how much money you owe is the essential first step in your road map out of debt.
The best thing to do here is to make a list of every creditor you have alongside the amounts you owe. You can even create a simple spreadsheet that can be adjusted as you go along. Also, be sure to record how much each minimum monthly payment is and the interest rates you are charged for each entry.
To complete this task, you will need to review your bank, credit card, and bill statements for the last 6-12 months. Happily, this is not such a difficult task anymore because this information can be accessed instantly online, usually through an organisation’s app.
It is also well worth your time to find out what your credit score and credit report say at this current time. You can do this easily by contacting one of the major Canadian credit unions.
This first step can indeed be emotionally challenging, but you need to know where you are before you can figure out the path that will lead you to where you want to be.
Don’t be too hard on yourself when you figure out the totality of your debts. Remember, you are not the only person to have ever been in this situation, and there are routes out. You have even taken the first step by working out the amount of debt you currently owe.
Can I afford to repay the entire debt?
This next signpost on the route out of debt is an important one. The reason is that the options for debt relief available to you will differ depending on your answer.
Of course, if you can answer yes to this question, it’s good news! Your path out of debt will be significantly shorter and less winding because all you will need to do is make adjustments to your monthly spending. Then you can pay the debt off with what you save.
However, if you wish to make the road to repaying your debts as short as fast as possible, you must remember three crucial facts.
The first of these is that you need to always pay off more than the minimum payment amount each month. Wherever possible, you should seek to pay as much as you can every month for two reasons. Firstly, it will shrink your overall balance, and secondly, it means you will pay less interest over time as well.
The second is that the debt with the highest interest rate is the one that you may pay off first. Even if it is not the account that you owe the most on. This is because high interest means you are being charged more for merely owing the debt. Therefore the faster you can pay it off, the less it will cost you over the long term.
Finally, the third fact is you need to keep a tight rein in your budget. That is, your outgoing spending always needs to be less than your income. The reason for this is by spending more than you make, you will only be falling back into debt and compounding your financial situation even further.
The good news is that if you can pay off your entire debt in this way, you can have two routes open to you. The first is to work with a credit counseling agency to create a debt management plan. While the second is to create a debt management plan yourself. Of course, most people tend to opt for the latter because a formal debt management plan will impact your credit report.
What are the debt relief options open to me?
Unfortunately, many people find they cannot repay their entire debts. However, if you find yourself in this situation, there is no need to panic. This is because there are other routes to debt repayment to consider too.
One path that you may wish to walk down to get out of debt is a consumer proposal. This is where you pay off only a part of the entire sum you owe, usually over 5 years.
Alternatively, you may wish to consider bankruptcy as a route out of debt. In fact, bankruptcy can help you because it provides a clean financial slate on which to begin again. Although it is worth noting that some of your assets may need to be surrendered to qualify.
Where can I go to find help and support with my debt?
If you are still wondering How to Get Help with Debt, and what path is right for you, the best thing to do is speak to an independent and objective expert.
Fortunately, our experienced and empathic advisors can answer all your questions, acting as your get out of debt ‘sat nav.’
Just drop us a line by filling in the form below, or call us on 1-877-879-4770 to discover your route to a debt-free life.
Bankruptcy Advice Should Come From A Trustee
People are charging for bankruptcy advice.
Being in debt can be a complicated and challenging situation—one where you can feel very financially and emotionally vulnerable. In fact, people in this situation often worry about their friends and family finding out about losing valuable assets like homes and business and even having their wages garnished. That is where the federal government takes money directly from your employer. Then puts it towards your debt, leaving you with a lot less in your pay packet.
Of course, the last thing that you need when you find yourself in such a state is to have someone prey on your vulnerability. Someone that asks for money in exchange for offering financial advice.
Sadly, this is a situation that occurs frequently. The reason being that there is a whole industry that has sprung up debt consulting. Yes, that’s right; some debt or credit consultants or counsellors charge people that are already struggling with debt for the advice they offer on bankruptcy. They do not charge small sums, either!
Although the real rub is that all of this information is available for free from Licensed Insolvency Trustee. Fortunately, you can find out all about avoiding being charged a fee for such advice, and the benefits of working with an objective Licensed Insolvency Trustee in the post below. Read on to find out more.
Licensed Insolvency Trustee vs. debt consultants
There are many professionals and people who work in fields that concern themselves with debt, finance, and bankruptcy, such as lawyers, accountants. However, it is essential to note that lawyers, and accountants, cannot administer proposals to creditors in bankruptcy. Debt consultants cannot either! In fact, there is only one type of person legally licensed by the Canadian government to do this, and it’s a Licensed Insolvency Trustee.
The thing is that professionals such as lawyers and accounts that are bound by an ethical code, usually understand the harm that they can cause by providing advice on bankruptcy. This is why they will recommend you call and speak to a trustee. After all, accounts and lawyers may well have some knowledge in the field. Still, they will not have the depth of understanding about it to make judgments for your particular case and inform you of how such action will impact you personally.
Unfortunately, debt consultants and credit counsellors often have no such scruples. Instead, it is their whole aim to get you to come to them for bankruptcy and consumer proposal advice. Even though they know full well that you will need to speak to a Licensed Insolvency Trustee.
Of course, the worst thing about this situation by far is that debt counsellors and credit consultants do not offer their services for free. In fact, they will ask those already drowning in debt to ask you to pay a substantial fee for their services. Unfortunately, such services are often not accurate or well suited to the individual client’s situation.
One of the biggest problems with credit counsellors is that they can seem authentic and helpful at first. However, because what they are looking to get out of the situation is their consultation fee, those using their services can often fall prey to their scare tactics. These may include being reminded about losing your assets, wage garnishment, and other people finding out that you are in debt.
Some credit counsellors even go so far as to suggest that Licensed Insolvency Trustees are not on your side when it comes to debt relief advice. Which is a little silly when they are actually government-endorsed objective advisors.
Once you have coughed up the fee that the credit counsellor or debt consultant is looking for, do you know what they will do? They will refer you on to a Licensed Insolvency Trustee. An objective expert that you could have consulted for free in the first place!
Why pay for what comes for free?
This situation is infuriating to those in the financial relief world that are looking to provide free and objective advice to those struggling with debt. After all, why should people have to pay for something that they could get for free anyway?
Licensed Insolvency Trustees will be legally required to set out every debt relief option for free. These options often also include ones where no bankruptcy or consumer proposal is filed. Yes, that is right, if a Licensed Insolvency Trustees can help you rejig your finances to relieve your debt, they will.
With that in mind, if you are considering bankruptcy or a consumer proposal, then please make sure you avoid going to a debt consultant and being charged for the pleasure. Instead, first, seek the advice of a Licensed Insolvency Trustee.
Contacting a Licensed Insolvency Trustee
Finally, if the fact that speaking to a Licensed Insolvency Trustee is free isn’t enough, remember that they are ethically trained and experienced in this area. Oh, and don’t forget that Licensed Insolvency Trustees are the only ones qualified to start bankruptcy and consumer proposal proceedings, as well.
Happily, our Licensed Insolvency Trustees, who you can contact on 1-877-879-4770, pride themselves on being objective and empathetic. They do not see their role as one of judgment, but one of support and finding the best-tailored solution to your debt problem specifically.
Also, our experience and dedicated 1-877-879-4770 can answer all your questions. Whether they are about bankruptcy, consumer proposals, division ones, and even business bankruptcy. They can also tell you if none of these options are right for you and guide you on how to better manage your current budget to pay off your debs. All you need to do is call us on or fill in the form below, and we will get back to you ASAP.
Although, no matter what you do, just remember that bankruptcy advice should come from a trustee, always. That means if someone isn’t a Licensed Insolvency Trustee, it’s time to step away. Otherwise, you could be adding to your debt woes, rather than resolving them.