When facing unmanageable debt, a consumer proposal can be a lifeline. This government-legislated solution allows you to negotiate a repayment plan with creditors where you pay less than what you owe. You don’t pay a dollar of interest and get to keep all your assets, making it a popular bankruptcy alternative. However, many debtors fall into the trap of offering an unrealistic repayment amount to their creditors and face the potential of the consumer proposal being rejected. Leaving the debtor with fewer options and less bargaining power.
In this guide, we’ll explain why presenting your creditors with a fair and reasonable repayment offer is the fastest way to get your proposal approved.
The danger of making unrealistic repayment offers to your creditors
It’s common for individuals filing a consumer proposal to prioritize low monthly payments, meaning they want a massive portion of their debts forgiven. While that’s a commendable goal, it’s not the approach you should take if you want your proposal to succeed.
Why? Creditors also have a vested interest in your consumer proposal. They want a repayment plan that benefits them just as much as you. Remember: the purpose of a consumer proposal is to allow you and your creditors to devise a new repayment plan. It’s not a one-sided affair.
Here are some consequences you could face if you submit a proposal with low monthly payments to your creditors.
Rejected proposal
If you offer your creditors a deal they believe is not reasonable or unfair, they may reject it outright during the creditor voting process. Alternatively, you may be able to revise your terms and submit a more appealing offer which may result in much higher payments on your end. If you decline to do this, there’s no chance of your proposal succeeding—you’ll need to find other solutions for your debt problems.
Delays in approval
Be mindful of the time it takes to file a consumer proposal. In the best case scenario, it takes a minimum 60 days before it becomes a legally binding agreement. A rejection by your creditors only prolongs your path toward debt relief, adding unnecessary stress and expenses to a demanding situation. That’s why putting together a well-structured and sensible offer from the start is critical.
Diminished negotiation power
Filing an unfair proposal erodes trust between you and your lenders, which can damage your credibility. The odds of them accepting a future offer drop, so you’ll have to renegotiate under more challenging circumstances. If you fail to arrive at a mutually acceptable deal, filing for bankruptcy may be the only realistic option for resolving your debt problems.
How creditors evaluate a consumer proposal—and why they might reject it
Your creditors won’t blindly accept any repayment plan under your proposal. They carefully scrutinize every aspect of the offer to ensure they receive a fair return given your ability to pay. Some of the factors they consider include:
- Your monthly income and expenses
- The value of your assets (including the equity in your home)
- The amount they would receive through bankruptcy proceedings
Creditors have up to 45 days to decide whether to accept or decline your offer. Then, there’s a further waiting period of 15 days where they can raise concerns while your proposal awaits court approval.
Why would a consumer proposal be rejected? The primary reason creditors might oppose your consumer proposal is that the repayment offer is too low based on the your financial position. In other words, they believe they can recover more money if you file for bankruptcy or by pursuing other tactics, such as wage garnishment or by seizing your assets.
How to improve your chances of getting approved on your first try
As noted previously, your creditors won’t take kindly to a repayment offer they feel is unreasonable based on your financial position. So, when creating your consumer proposal, it’s crucial to remember this dealbreaker.
If you can pay more, don’t attempt to blur the facts. Are there luxuries you can eliminate from your budget? Do you own assets with tremendous equity? Are you expecting a financial windfall soon? Be honest about the strength of your finances and always address any concerns creditors may raise during the negotiations.
Of course, avoid over-extending yourself with your offer, it’s vital that you can afford to make the monthly payments on time. The last thing you want is to default on your consumer proposal and have it annulled.
What constitutes a fair offer? It is really a case by case scenario and depends on your total financial situation. The creditors want to recover as much as you can afford. While they have no set general expectation, a general guideline for the average debtor is between 20% and 50% of the debt owed. This is a good range to keep in mind after accounting for your income, expenses, and the value of your assets. In some cases, it may be higher.
Crafting a reasonable and balanced consumer proposal can be tricky, but you won’t have to do it alone. Your Licensed Insolvency Trustee will help you devise a repayment plan that your creditors will embrace, minimizing the risk of a rejection or demand for amendments. Which brings us to our next point:
The importance of choosing the right trustee
Working with an experienced Licensed Insolvency Trustee is essential to ensure the success of your consumer proposal. They play an integral role in the process from start to finish, which includes helping you put together a repayment offer to your creditors as well as providing customer service until you complete the process.
Here are some tips for finding an effective and trustworthy trustee:
- Ask questions. Have the trustee walk you through how they calculated your monthly proposal payment.
- Understand the process. Familiarize yourself with the consumer proposal process from start to finish. Learn how creditors vote on a proposal and the implications of a rejected offer.
- Beware of offers that seem too good to be true. Unusually low monthly payments can be a red flag, especially if you know that you can afford to pay more. A reputable trustee will prioritize creating a proposal that balances your needs with creditors’ expectations.
- Research the trustee’s reputation. Take some time to research the trustee’s reputation. Reading reviews can help you feel confident that you’re choosing someone who is experienced, trustworthy, and focused on helping you move forward with a clear plan.
At David Sklar & Associates, 99% of the consumer proposals we file are accepted by creditors. We’re committed to getting it right the first time, helping you avoid the stress of rejections and tense renegotiations. Learn more about the consumer proposal filing process.
Why switching trustees can be problematic
Once you’ve filed a consumer proposal with a certain trustee, switching to another trustee is not an option. For this reason, ensure you choose a trustee you feel comfortable working with and who will create a fair and practical proposal from the beginning.
The bottom line on making a fair repayment offer in a consumer proposal
When it’s time to file a consumer proposal, avoid unrealistic expectations. While lower monthly payments may seem enticing, they can be a double-edged sword. A proposal that creditors deem unfair or unrealistic will likely be rejected, leading to delays, higher payments, and added stress. Therefore, always consider the expectations of your creditors when preparing your repayment offer—your odds of getting the green light are very strong.
If you’re struggling with debt, don’t gamble on low payment promises that might lead to rejection. Contact David Sklar & Associates today to schedule a free consultation. With over two decades of experience, we’ll guide you through the process and help you create a proposal that’s fair, transparent, and likely to succeed.
