Informal и Consumer Proposal

Informal and Consumer Proposal

In our previous article, we looked at the main methods of debt relief. In this article, we will explain Informal Proposals and Consumer Proposals.

1. Personal Informal Proposal — A private arrangement between a debtor and a creditor to reduce the amount of debt. In some cases, a debtor may contact creditors directly, explain their difficult financial situation, state that they are unable to repay the full amount, and request either a reduction of the debt or an extension of the repayment period. This approach can be effective when you have only two or three creditors and the debt is not too large — meaning you must still be able to repay the agreed amount within a reasonable timeframe. The debtor must negotiate with each creditor individually. In this way, it may be possible to arrange a reduction of approximately 20–30% of the debt. Collection agencies often demand that 80% of the debt be paid in one lump sum.

2. Personal Consumer Proposal — A formal proposal to write off a significant portion of an individual’s total debt. What is a Personal Consumer Proposal? It is a government-regulated program that can help reduce 60% to 90% of debt, depending on the debtor’s situation and provided that the creditors agree to the offer. In many cases, creditors accept repayment of approximately 25–27% of the total debt. For the agreement to be approved by creditors, its terms must be more favourable to them than the debtor’s potential bankruptcy. At least 51% of the creditors, by dollar value of the debt, must approve the proposal. Usually, a proposal is better for creditors than bankruptcy, so in most cases such proposals are accepted. There may be exceptions — for example, if you have substantial equity in your home but are unable to pay your debts, creditors may find it more beneficial to receive part of that home equity in the event of bankruptcy. Every case requires careful and comprehensive review. Our company, DEBT DOCTOR, works in your interests — the interests of debtors — to minimize your losses. Once an agreement has been reached on the repayment amount or the percentage of the total debt, the amount is divided into 60 monthly payments. The debtor makes payments to the trustee, who administers the process and distributes the money among all creditors in proportion to the amount owed to each of them. In addition to the total amount of your debt, an important factor in determining the monthly payment is your personal situation and how much you can realistically afford to pay. The assistance of DEBT DOCTOR will be extremely important to you.

There are two types of proposals available to individuals: Consumer Proposals and Division I Proposals.

Consumer Proposal

- Debts must be less than $250,000, not including the mortgage on the property where you permanently reside, known as your Principal Residence.
- The repayment period cannot exceed five years.
- Regular income is required in order to make the payments, such as salary, benefits, pension income, and so on. In other words, if you cannot afford to pay even a small amount every month, you do not fall into this category and may need to consider bankruptcy.
- The debtor must complete two debt-management counselling sessions.
- It can be submitted to creditors only through a trustee in bankruptcy or an administrator of consumer proposals.
- The review period is up to 45 days from the date of filing, provided there are no disputes between the debtor and the creditors. Once accepted, the proposal becomes legally binding, or deemed accepted.
- If the creditors do not agree to the Proposal, or if the court does not approve it, the debtor cannot submit another proposal.
- A rejected proposal does not mean that the debtor automatically becomes bankrupt. The debtor may withdraw the file or declare bankruptcy.

Division I Proposal. The main differences from a Consumer Proposal are:

- Debts exceed $250,000, not including the mortgage on the property where you permanently reside, known as your Principal Residence.
- The repayment period may exceed five years.
- Debt payments usually range from approximately 40% to 60% of the total debt.

Now let us explain the main difference between proposals and bankruptcy. I would like to emphasize again that we work with every client individually and find the best solution for each specific case. A Consumer Proposal is definitely much more advantageous for those who have stable income, have equity in a home or vehicle, or simply cannot declare bankruptcy because it would cause them to lose a professional licence, a business, and so on. With a Consumer Proposal, we can help protect your home, vehicle, and business, restore your creditworthiness, stop collection calls, and prevent you from carrying the stigma of bankruptcy. On the other hand, there are people who have nothing to lose, no assets that can be taken, or who do not plan to use credit again — seniors, immigrants, or anyone who sees no realistic possibility of making even small payments. These people may be candidates for bankruptcy. We will discuss bankruptcy in the next article.

If you are struggling with debt, contact us — we will help you protect your property, get rid of debt, and start a new life!