How much should you propose to pay?

Fairly simple math is our primary guidance in determining the amount you should propose to pay in your consumer proposal.

In your consumer proposal you should offer to pay enough monies so your unsecured creditors will receive a return greater than if you were instead bankrupt. The basis premise being that your creditors should opt for the alternative providing the greatest recovery – presumably between a bankruptcy and a consumer proposal.

It doesn’t always work this way. Creditors have rejected realistic consumer proposals and have accepted proposals where the return is a bankruptcy would be greater. From experience, LITs generally know what is required in a consumer proposal to get it accepted, this depending of course on who your creditors are and how much is owed to each. In other words, which creditors have the voting clout? Who really matters? Is a consumer proposal even feasible?

Ken will help figure it out

I have made successful consumer proposals where creditors have received nothing and where they have received 100 cents on the dollar plus 5% interest. Proposal obligations should depend on your income, your assets, your debts, and who your creditors are.

So, it starts by calculating your creditors’ expected return if you were bankrupt. Then we would estimate the amount of recovery your creditors would hopefully find acceptable in a lengthier consumer proposal. For example, if a bankruptcy would give your creditors a 20% recovery, then we would calculate how much you needed to pay to give them, say, a 25% recovery in a consumer proposal.

With some assumptions, this is a fairly easy calculation, with fairly simple math. To calculate the expected return in a bankruptcy, we need to know:

  • your net monthly income
  • the net monthly income of others in your family unit
  • certain expenses such has child care, and medical
  • number of persons in your household / family unit
  • whether you have been bankrupt previously
  • your assets and their values
  • the amount of your unsecured debts

Knowing the bankruptcy return, and who your creditors are, we can estimate what you should offer to pay in a consumer proposal and do our best to make it fit your budget.

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