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The length of a consumer proposal cannot be for more than five years (60 months).
A consumer proposal also must offer the creditors more than they would receive in a bankruptcy.
Balancing these two rules will give the payments that must be made on a consumer proposal.
One strategy is to set the length of a consumer proposal for five years. This way the creditors cannot ask that the term be extended, as they might if the consumer proposal were set for three years.
Creditors can still ask that the payments be increased but it is easier for the debtor to illustrate that he cannot afford higher payments, than he can illustrate that he cannot make payments for an additional two years.
Paying a Proposal Down More Quickly
A consumer proposal can be paid down more quickly than the length of a consumer proposal set by the consumer proposal.
So if you come into more money you can pay the consumer proposal off more quickly. Another strategy is to see if a family member will fund a lump sum payment to the creditors. Let’s assume you earn only enough money to make payments to cover the trustee fees of $1,800.00.
You would rather not file bankruptcy and your father is willing to guarantee a $10,000.00 payment to the creditors, but only if they accept the consumer proposal.
Your father gives $10,000 to the trustee as a Third Party Guarantee that states that the funds will be returned in full if the creditors do not accept the proposal.
The trustee puts this money into his trust account.
The consumer proposal will provide this information to the creditors and state that the payment to the creditors will be made within a week of the court’s deemed approval, which could be in about two to three months.
There is a very powerful incentive for the creditors to approve this proposal because they get some money very quickly whereas if they do not accept this, the debtor will file bankruptcy and the creditors will get nothing.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.