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.

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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:


  1. How much money would your creditors receive if you went bankrupt?
  2. 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:


  1. They feel your offer is too small, particularly if you owe them a lot more money than everyone else.
  2. 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 a 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.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal

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