If you are somewhat familiar with consumer proposals, then you are also aware of their benefits. The consumer proposal is an effective way to take advantage of the positive side of bankruptcy and avoid its negative effects such as the loss of assets. The secret: to compose well your proposal of consumer. In order for the proposal to be accepted, 51% of creditors must vote in favor; Better write it well.
Consumer Proposal vs Personal Bankruptcy
Creditors usually prefer consumer proposals because it allows them to recover more money ( read this article to compare the proposal to bankruptcy). Also, do not forget, creditors are getting less money with the proposal than with other solutions available in Canada. For example, you need to demonstrate that other solutions have not worked for you, debt consolidation or credit orientation. If you are able to convince them that personal bankruptcy is all you have left, they will be more inclined to accept your consumer proposal.
Consumer proposals: offering money to creditors
Although more complicated than bankruptcy, the consumer proposal gives you more flexibility. In the event of bankruptcy, creditors have the right to demand all your property except those exempted in your province. If your proposal is accepted, all your property will be exempt from seizure. The more money you are able to offer to your creditors (hence the flexibility) the greater the chances that your proposal will be accepted, which will allow you to keep your assets.
Any creditor is different and the reasons for which they will accept or decline the proposal may vary; perhaps he will want to negotiate a debt settlement. If you want your proposal to be accepted, demonstrate flexibility during the negotiation. Experts suggest that you pay between 0.15 and 0.40 cents for every dollar. Arriving prepared, you will increase the creditor’s trust.
What determines whether a proposal is accepted or rejected?
The key to success is to make a proposal that will convince 51% of your creditors. As soon as a majority approves your proposal, it comes into effect. Once the proposal is submitted, it is up to the creditors to either accept or reject the proposal. Each creditor has one vote for every dollar he has lent to you.
For example, if your total debt vote is $ 500, and you owe it to three creditors, the creditor to whom you owe $ 180 holds 36% of the votes. The creditor to whom you owe $ 75 holds 15%, and the creditor to whom you owe $ 245 holds 49% of the votes. If the first two creditors accept your proposal, the third creditor automatically accepts your proposal because the first two sets hold 51% of the votes.
The creditor who objects to the proposal must do so in writing. If the creditor does not vote against your proposal, his vote is considered a vote in favor of the proposal. If one of the creditors holding more than 25% votes against, your trustee will arrange a meeting of all creditors. If this happens, you should expect to have more than 51%. Even if some creditors vote against, their votes could be of little importance depending on the amount of money you owe them.
How to approach creditors with a proposal?
Do not think that approaching your creditors by yourself is a good idea. In fact, it is a legal process that can not be done informally. If the proposal is not written properly, the creditors will not accept it. Rather, contact a bankruptcy trustee who is in your province. The reason for this is that the same legislative framework applies in case of bankruptcy and in case of proposal.
Be informed before writing a proposal
Make sure you have exhausted all other alternatives before turning to the consumer proposal. There are always other solutions such as negotiating a debt settlement. In fact, debt settlement would be more beneficial to your financial situation. Know that there are a large number of experts and specialized companies who are there to help you with your debt in the best way possible.