In Canada and in the United States, people with large amounts of debt can avoid filing for bankruptcy
by using consumer proposals instead. A consumer proposal
is a debt negotiation plan that allows debtors to pay for a portion of the debt instead of the full payment. The good news is that the process is legal and binding.
What is a Consumer Proposal?
A consumer proposal is basically a debt reduction strategy that allows debtors to pay for a substantial amount of their debt while creditors get at least a portion of the money they lent. This produces a win-win situation because both parties benefit from the agreement and proposal. The debtors are given more time to pay for the debt, while the creditors are guaranteed to get at least a portion of the payment instead of getting a small percentage or nothing at all.
Consumer proposals work well when a person has a debt that is within the range of $5,000 to $250,000. This is so when the debtor is capable of paying for a portion of the debt and the debtor does not want to file for a bankruptcy.
The process involves a legal procedure where the creditors agree to allow debtors pay for only a portion of the debt in a longer span of time. Unlike other debt management plans, this procedure is binding on the creditors.
Advantages of a Consumer Proposal
This type of debt negotiation strategy offers debtors a maximum of five years to repay their debts. If a majority of creditors agree to the proposal, it is also binding to all other creditors as well. As soon as the proposal has been approved, all interests are frozen. Through a finance advisor, a debtor can negotiate with creditors to allow him pay for only a certain portion of the debt. As soon as the proposal gets approved, creditors cannot sue him in court.
How it Works
The first step involved in the process is to have a consumer proposal administrator help you understand your financial situation. The administrator also helps you calculate the monthly payments you can make to cover your debts. A timetable will be prepared to determine how many months or years you will pay for the debt. The administrator will then proceed to create a proposal if all calculation results are reasonable and fair for both debtor and creditors.
After a proposal has been made, the creditors are given 45 days to decline or accept it. When a majority of the creditors agree to the proposal, all creditors are deemed to have accepted the proposal. Once the court approves the proposal, the debtor and all of his or her creditors are bound by the proposal.
Why Would Creditors Accept a Proposal?
The main goal of creditors is to recover as much money as they can from debtors. As long as the consumer proposals allow them to recover more money than in a bankruptcy situation, creditors will most likely choose to agree. This will prove to be beneficial for both parties.