When working out the terms of your consumer proposal with a trustee, your advisor will help you determine what terms might be acceptable to both you and your creditors. In doing so, they will follow a couple of key principles:
- You must offer your creditors more than they would receive if you were to file for bankruptcy in order for the creditors to be likely to agree.
- You must be able to make the payments that you are proposing. Your creditors must have some sense that you will be able to maintain your payments for the length of your proposal. This is where a budget is important. If you can only afford $500 per month, a plan to pay $650 makes no sense.
There may, however, be circumstances where the proposal you presented, or the proposal accepted by your creditors, needs to be amended. Two such circumstances are:
- Your creditors vote ‘no’ to your initial proposal terms. If 25% or more (based on the value of claims filed) of your creditors vote no to your proposal when initially filed, then your trustee will be required to call a First Meeting of Creditors. Usually creditors vote ‘no’ because they want more money. Your trustee will help you determine how best to proceed. You could offer your creditors more money so that they accept the proposal or you could allow the proposal to be rejected. You can then decide if declaring bankruptcy is a better alternative for you.
- You are unable to make the payments in your consumer proposal.You are allowed, by law, to fall into arrears the equivalent of three monthly payments during your consumer proposal. If you do, on the day that your third payment came due, your proposal is deemed to be annulled. In otherwords, it will be cancelled. Effectively this means that your debts are re-instated, including any interest and penalties that would have been charged if the proposal had not taken place. You will have lost any payments you made under the proposal and you cannot file another proposal for those debts without permission of the court.If your circumstances change, and you think you will not be able to continue to make your payments as originally proposed, you should discuss this with your trustee. It is possible to ammend the proposal. Your creditors will have to approve your new terms.
If you are unable to make your payments as originally agreed, an option to discuss with your trustee would be to allow the proposal to be annulled and then file an assignment in bankruptcy.
Still have a question? Contact one of our experts for a free, no obligation evaluation with a Consumer Proposal Administrator.
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If you are experiencing money problems, and are thinking about filing a consumer proposal or bankruptcy in Canada, we recommend you arrange for an in-person consultation with a licensed Bankruptcy Trustee. All of the Trustees listed on Moneyproblems.ca offer this services free of charge. This initial, no-obligation consultation will help you understand all of your options, including seeing if a consumer proposal is the best option for you.