How much does a consumer proposal cost?

A consumer proposal is a very interesting solution that allows you to negotiate a reduction of your debts, eliminate all interest on these debts and that allows you to  keep your assets. With its growing popularity, many people are to know how it is negotiated and what are the costs associated with this debt relief strategy. This article will help you discover the 5 factors that influence how the amount to offer is determined and what the fees and charges associated with this option are.

The 5 factors that will influence the amount offered to your creditors

For a consumer proposal to be acceptable to creditors, it must be reasonable and viable. What does that mean? A proposal is considered reasonable if the amount offered is higher than what creditors could obtain if you decided to not pay them and declare bankruptcy. On the other hand, a proposal is considered viable if the amount offered respects your ability to pay. There is no point in offering too much if you are not able to make the promised monthly payment afterwards.

During your consultation with a licensed insolvency trustee, this debt expert will determine the amount that should be offered based on the following factors:

1. Total amount of your debts: The higher your debts, the higher your monthly payments are likely to be, since if creditors are asked to have the repayment over 60 months, they  generally will want to recover a percentage of their claim that justifies this delay.
2. Your income: Your ability to repay your creditors will be evaluated by the advisor based on your monthly income as well as by standards established by the federal government. The higher your capacity, the higher the amount you will normally have to offer in your proposal.
3. Your expenses: Your current expenses (housing, food, transportation, child care, etc.) will be taken into account in the evaluation of your financial capacity, as they have a direct impact on the amount available at the end of each month.
4. The value of your assets: The net value of your assets (i.e. the difference between the market value of your assets and the amount of the mortgage or secured loan on these assets) has a direct impact on the minimum amount offered. Indeed, since creditors have to choose between either accepting the proposal or settling for the status quo, they will want to ensure that the amount offered in the proposal is higher than what they would receive if you declared bankruptcy or if they liquidated your assets in legal proceedings.
5. The length of the proposal: The maximum time is 5 years (60 months). The monthly amount will be adjusted accordingly to repay the total agreed-upon amount in the proposal. There is no interest charged on this amount. At any time, it is possible to pay off the amount more quickly, without penalty.

In almost all cases, a negotiation resulting in a reduction of the total amount of debts and/or the elimination of interest charges on the amount to be repaid results in a much lower monthly payment than the ones you currently have to pay. The difference can range from a few hundred to several thousand dollars per month, depending on each individual’s unique circumstances.

Who determines the amount offered in a consumer proposal?

The advisor at the trustee’s office and the Trustee him/herself will be the ones who will advise on the best course of action, based on the 5 factors mentioned above and 2 key principles (reasonable and viable). However, you always have the final say. Licensed insolvency trustees, such as those at Jean Fortin, are the only professionals with the expertise and the right to submit such a settlement offer to your creditors and to provide the legal protections available under a consumer proposal.

The fees and costs of a consumer proposal

The fees for a proposal are regulated by the Bankruptcy and Insolvency Act. They consist of a base amount of $1,500 plus taxes, along with approximately $300 in miscellaneous fees. Every trustee firm determines the amount they will require from you at the start of the file as a deposit or monthly payments pending a decision from the creditors.

If the proposal is accepted, additional fees of 20% of any amount distributed to the creditors will be deducted from the money sent to the creditors. It is important to understand that the trustee’s fees and costs are included in the amount specified in your proposal. Thus, if you offer your creditors a sum of $18,000 payable in 60 monthly installments of $300, you will only have to pay $18,000. The creditors will cover the trustee’s fees and costs ($1,500 + $300 + 20% of the distribution) from the $18,000.

These provisions of the Act ensure that you will not face any surprises and, more importantly, that you will not have to pay large amounts upfront. The trustee will only be entitled to their full fees if the proposal is accepted by your creditors and the monthly payments stipulated in the proposal are made.

Moreover, the trustee is an officer of the court who performs his/her duties under the supervision of the Office of the Superintendent of Bankruptcy. Therefore, you can be assured that the funds you pay for the benefit of your creditors are subject to very strict requirements and protections.

Find out more on how a consumer proposal can help you?

To get an accurate estimate of the amount that should be offered in your consumer proposal, it is recommended to consult a licensed insolvency trustee. At Jean Fortin & Associés, you can simply make an appointment online or by phone at 1-877-777-2433. You will quickly receive a free informational meeting that will allow you to assess your financial situation and inform you of the financial solutions tailored to your needs.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee