Is there a set amount you must pay in a consumer proposal?
I read in a newspaper that a consumer proposal requires you to pay 30% of your debts. And not long ago, someone came into my office and asked me to prepare a consumer proposal to his creditors when he had more money in the bank than he had in debt. He thought he only had to pay 30%, an amount we can now call an “alternative fact”.
Calculators You Can Find on the Web
I see several Consumer Proposal Payment Calculators on the web. I prefer to call them Debt Options Calculators. Our calculator suggests you should offer to pay sufficient monies for your creditors to receive 20% of what you owe, subject to reduction for the Superintendent’s 5% levy. Our calculator equates to you paying 27.2% of your debts. Other calculators I see suggest you should offer to pay from 20% to 35% of your debts. Are any of these correct? No, none of them. And as an aside, after digging deeper into the Search Engine Results Page following my search, it appears five of the listed top six calculators are from the very same firm or cooperative group of Licensed Insolvency Trustees. Are they believable?
The Assumptions of Online Calculators
I once structured a successful consumer proposal where the person paid less than 2% of their debts and others where the person paid over 100% of their debts. There is no rule-of-thumb regarding what you should offer to pay unless you make several assumptions. Online calculators generally assume:
- You have no significant debts that would constitute preferred claims;
- You have no unsecured creditor who is owed more than 50% of your total unsecured debts. In other words, none of your creditors can outvote all other creditors; and
- If you were bankrupt, the sum of:
- your estimated total requirement to pay surplus income during your bankruptcy; and
- the estimated value of your assets that exceed your exemptions
would not exceed the total amount the online calculator suggests you should offer to pay in your consumer proposal. Otherwise, your creditors might get a better return if they forced you into bankruptcy.
Your Particular Circumstances Must be Considered
You cannot always assume these assumptions are irrelevant in your situation.
After having prepared, filed, and administered thousands of consumer proposals, I can calculate and recommend the amount you should offer to pay in your consumer proposal but only after several questions have been answered. We need to cross off the assumptions firstly.
The Factors Determining What you Should Offer to Pay in a Proposal
Remember the general premises of your consumer proposal:
- The percentage return to your creditors under your consumer proposal should exceed the amount creditors would receive if you were bankrupt instead;
- Your consumer proposal must have a maximum 60-month duration; and
- Your total debts excluding any debts secured against your principal residence are less than $250,000.
Other factors that come into play and yet are very difficult to assess mathematically are:
- Who your creditors are;
- The total amount of your debts;
- Your financial prospects;
- The causes of your financial problems; and
- Your financial dealings over the past year.
Meet with a Licensed Insolvency Trustee
The only way to understand the amount you should offer to pay in a consumer proposal is to meet with a Licensed Insolvency Trustee. Don’t meet with a clerk or a calculator but with an LIT. It’s not 30%. It could be less. Give us an opportunity to show you in a free consultation.