Consumer Proposal Payment Terms
The Consumer Proposal is a legal procedure administered by the Office of the Superintendent of Bankruptcy (OSB) through consumer proposal payment terms.
The Bankruptcy & Insolvency Act of Quebec covers rules regarding consumer proposals.
The consumer proposal is not like other debt repayment solutions.
The requirement to be eligible for a Consumer Proposal is that you owe not less than $1000 and not more than $250,000 to your creditor(s).
You also should have a regular income, but the income is insufficient for you to make the monthly payments to your creditors under the current terms.
Generally, the type of debt acceptable for a Consumer Proposal are unsecured debts.
You can also file if you have tax debt or student loans, but certain conditions apply.
Your Proposed Consumer Proposal Payment Plan
As noted, your Consumer Proposal needs to outline a payment plan to present to your creditors.
Your commitment to that plan implies that your creditors are also willing to eliminate part of your debt.
The repayment plan should take into consideration your current financial circumstances and make it easy for you to make monthly payments considering your financial situation.
There are several types of payment plans you and the trustee can put forward to your creditors. Below are examples of payment plan proposals.
This is also known as fixed monthly payment.
Depending on your income, you’ll propose a fixed monthly payment to your creditors for a set period.
Back-end loaded Proposal
Under this type of proposal you are willing to start by paying a low amount for a certain period then increase the payment to complete the proposal.
You might be interested in forwarding such a payment plan if you’re certain that you’ll have an increase of your income sometime in the future, or if you are still paying some other secured debt like mortgage or car loans, etc and expect to finish paying them soon.
The back-end loaded will allow you to divert the money to your Consumer Proposal payment when you’ve finished paying the other debts.
With this type of proposal, it’s inverse to the back-end loaded.
You start by making high monthly payments and decrease the amount after a certain period.
This is best when you’re uncertain about your future income, maybe because you work on an hourly wage.
If your income fluctuates depending on the season, you may want to reflect that on your monthly payment.
For instance, the type of work you do is busiest during the summer season and you get more overtime.
Apart from these types of proposals, you might also consider other payment solutions such as paying with a lump sum at a certain period if, for instance, a family member or friend act as a guarantor to provide you such amount.
Obviously, the proposal is subject to acceptance by your creditors.
Your trustee will send your proposal to the OSB and to your creditors.
Your creditors will have 45 days to respond whether they accept or not.
Most of the times, the creditors will seek a meeting to make amendments to your proposal so that you can find a middle ground.
Calculating your Consumer Proposal Payments
Most often a Consumer Proposal consists of providing a repayment plan that covers 30-40% of the initial debt, but it depends on individual situations.
When you present your trustee with your financial situation, to determine how much you will have to repay to your creditors the trustee will take into consideration:
- How much you owe and to whom;
- If you have any assets that can cover part of the cost if you default your Consumer Proposal and have to file for bankruptcy;
- Your monthly income.
Drafting a Strong Debt Proposal
The trustee must also understand the creditors expectations.
Some creditors may expect a higher monthly payment or are not satisfied with eliminating more than half the debt.
The aim of the Consumer Proposal is to provide your creditor a reasonable payment plan you can afford under your current circumstances.
Most of the times, creditors ask for a meeting to be arranged.
Even the trustee or the Office of the Superintendent of Bankruptcy may suggest that you have a meeting with your creditors.
If your proposal is accepted by your creditors, you’ll have to adhere to the terms.
Otherwise you could be left in limbo and having to file for bankruptcy.