What Percentage Are Debts Reduced by in a Consumer Proposal?

What Percentage Are Debts Reduced by in a Consumer Proposal?

Understanding Debt Reduction in Consumer Proposals

There’s a common question that surfaces when discussing consumer proposals, and it’s: What percentage are debts reduced by in a consumer proposal?. While many may promote that you can reduce your debt by up to 80%, it’s crucial to understand that a myriad of factors influences this percentage.

1. What is a Consumer Proposal?

A consumer proposal is a legally binding agreement set up by a licensed insolvency trustee between you and your creditors. This agreement helps you manage your debts by reducing the amount you need to pay back to your creditors.

2. Determining the Debt Reduction Percentage

One key thing to note is that there’s no standard percentage at which debts are reduced in a consumer proposal. However, it must offer your creditors more than they would receive if you file for bankruptcy. This makes sense; why would your creditors accept a proposal that gives them less than they would get if you were bankrupt?

3. Factors Influencing the Debt Reduction Percentage

Assets
Several factors come into play when determining the percentage of your debt that can be offered in your proposal. First, your trustee will assess your assets. These include:

  • Assets with a value that exceeds any secured debt or provincial exemption.
  • Assets such as GICs, RESPs, house equity if greater than $10,000, vehicle if value exceeds $6,600, trailers, etc.

Income
Your income also influences the amount you can offer to your creditors. If your income surpasses a given threshold set by the Superintendent of Bankruptcy based on your family size, you would be required to make surplus income payments for a certain period.

Transfer of Assets
Lastly, any transfer of assets or preferential payments that have been made will also be considered.

4. The Role of a Licensed Insolvency Trustee

A Licensed Insolvency Trustee will review your financial situation in detail to determine what would be realizable in a bankruptcy. They will then guide you on the amount you should offer to your creditors in a consumer proposal.

5. Affordability of the Payment Terms

The trustee must ensure that you can afford the payment terms that are being offered to your creditors either based on your budget or a third party providing the funds. The consumer proposal must be completed within five years.

6. Understanding Your Creditors

The trustee will also examine who you owe money to. Different creditors are willing to accept different recovery rates in a proposal. Hence, it’s crucial to understand your creditors when making a consumer proposal.

7. Getting Assistance from Fresh Start Now

Fresh Start Now has been filing consumer proposals for a long time and is familiar with the recovery rate that certain creditors are willing to accept in a proposal. Based on these factors, they can fully explain your options and the percentage of your debt that can be offered in your proposal.

8. Conclusion

While it’s tempting to believe that a consumer proposal can wipe out a significant chunk of your debt, it’s essential to understand that there’s no standard percentage. However, with the help of a licensed insolvency trustee and understanding your assets, income, and creditors, you can negotiate a fair and manageable percentage.

9. FAQs

Q1. What is the standard percentage debts are reduced by in a consumer proposal?
A1. There isn’t a standard percentage that debts are reduced by in a consumer proposal. A myriad of factors influences the debt reduction percentage.

Q2. How does a consumer proposal work?
A2. A consumer proposal is a legally binding agreement set up by a licensed insolvency trustee between you and your creditors. This agreement helps you manage your debts by reducing the amount you need to pay back to your creditors.

Q3. How can Fresh Start Now assist me with my consumer proposal?
A3. Fresh Start Now has extensive experience in filing consumer proposals. They can help you understand your financial situation, your options, and the potential percentage of your debt that can be offered in your proposal.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.