You’ve probably been asking yourself ‘Will My Creditors Accept My Consumer Proposal?’
Knowing how a consumer proposal works is important – we wrote an extensive article on how they work, what they are, how much they cost, etc. We highly recommend you read that article prior to reading this one. A consumer proposal is arguably the best debt restructuring vehicle that exists for most people who are struggling with debt. The reason for this is it typically provides maximum relief when comparing the consequences.
However, as with any restructuring method, it isn’t entirely perfect. There is a chance that a proposal can be refused by your creditors. To get any anxiety you may be feeling out of the way right now – When you work with 4 Pillars, the chance of your proposal not getting accepted is nearly 0% when we base this off of past clients’ results.
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Why are creditors willing to accept a consumer proposal?
This is an important question to ask as it really paints a picture as to what creditors are looking for. Creditors are willing to accept a consumer proposal because of the next alternative that exists; bankruptcy. A consumer proposal is based upon what is known as your ‘hypothetical bankruptcy value’ which determines how much you are work in bankruptcy. In 99.9% of cases, a consumer proposal requires that you offer your creditors more than you are worth in bankruptcy. This means that if you went bankrupt, creditors would stand to make less money than if you filed a proposal.
So in a nutshell – creditors are willing to accept a proposal because if you file bankruptcy they will make less money.
How Much Money Should I Offer to My Creditors to Improve the Chances of My Consumer Proposal Being Accepted?
Knowing what you offer your creditors in a proposal is more of an art than a science. Things such as your backstory, which creditors you owe, how much you owe them in proportion to the others, your current financial situation, your potential future financial situation, and the list goes on and on. This is why it is very important to speak with a professional as knowing what to offer your creditors is extremely important.
Look at it this way, a $50 difference per month in a proposal may not seem like a lot, but in fact, this represents an extra $3000 paid over the life of the proposal. Most people wouldn’t bat an eye at a $50 difference in payment. When you start considering how much a $100 or a $150 per month difference makes it starts to make sense why speaking with an unbiased professional makes sense.
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What we personally recommend you do is work with a professional to determine your hypothetical bankruptcy value. Once you have determined this hypothetical bankruptcy value you need to review this against what you can afford and the creditors you have. Some creditors, like CRA, typically want to receive more than your typical collection agency would in a proposal. In these instances, you may want to be on the conservative side.
The amount you offer is definitely correlated to the chance creditors accept it on the first offer. However, based on our experience, this is not a linear correlation. What we mean by this is that if you double your offer, it doesn’t double the chance of it being accepted at the first offer. It may be shocking to most people but the actual offer itself is sometimes the least important part of the file. It is far more important to properly portray your struggle to the creditor than your offer is in certain instances
Because of this, we actually recommend that people be as aggressive as possible with their offers only after they have properly considered their hypothetical bankruptcy, understand their mix of creditors and how they may respond, and finally their ability to properly portray their struggle to the creditors.
The truth behind this question is it is nearly impossible to properly answer this question without fully understanding your situation. While most professionals would recommend that you offer to pay back at least 30-40% of the debt that you owe in a proposal we wholeheartedly disagree with this. We recommend you be as aggressive as you need to be, given your situation. If that means you can only afford to pay 10% back (And are worth nothing in bankruptcy) then that is a great offer.
The best part about a consumer proposal is that you only need 51% of your creditors to vote in favour of your proposal for it to be approved and binding on everyone. We wrote about this in our consumer proposal article. Check it out to learn all about how a proposal works!
If you want advice on your particular situation, please feel free to contact us.
This article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring strategies can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again.
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If you are struggling with debt please reach out. It hurts to continue to suffer financially. 4 Pillars Halifax services Halifax, Dartmouth, Bedford, Sackville and the entirety of HRM.