Are Consumer Proposals Often Refused?
No, creditors accept most consumer proposals, because most consumer proposals are a good deal for both the debtor and the creditors. In fact, most proposals do not even need a meeting of creditors. And as trustees gain experience with this debt solution, the acceptance rate of their consumer proposals can rise even higher.
Why do creditors like consumer proposals?
The trustee who acts as the administrator of your proposal will explain to you how your specific proposal will be viewed by your creditors.
Most creditors perform a calculation for each of the consumer proposals they receive: they calculate how much money they would get from the proposal, and compare it to how much they would get if the debtor were, instead, to file for personal bankruptcy in Canada. If the proposal offers greater realizations than a bankruptcy, they will be inclined to accept it. The greater the realizations, the more likely they are to approve on it.
A typical example
Here’s a simple example. Let’s assume that the total payments a bankrupt would be required to make in a bankruptcy (based on his/her income) was $4,000.
If the debtor offers a proposal where they pay $200 per month for five years, that’s a total of $12,000. Since $12,000 is significantly higher than $4,000, the creditors will be inclined to accept the proposal – even though it will take them 5 years to get all of their money.
In this example, since the proposal is a better deal for the creditors than a bankruptcy, they will probably accept it.
Why do debtors like consumer proposals?
Even though, in consumer proposals, debtors are paying more than they might have to pay in a bankruptcy, it gives them certainty in how much they are required to pay, and they avoid having to file for bankruptcy. So, the debtors are also happy.
What should I do?
For an overview of consumer proposals, and whether a proposal would be right for you, read our Introduction to Consumer Proposals.
To learn more about the proposal process and how it would affect you, follow our step-by-step guide.
We have tried to answer your question ‘Are consumer proposals often refused’. However, each situation is different, so we suggest that you arrange for a free consultation with a Licensed Insolvency Trustee. He/she will fully explore your specific situation and help you determine if a proposal really is the correct option for you.