Cost of a Consumer Proposal
One solution that will lower your overall monthly payments and consolidate your debts is a Consumer Proposal. A consumer proposal is a legal agreement between you and your creditors to repay a portion of your total unsecured debt . The amount you repay is largely based upon your income and what you owe. The consumer proposal was established by the Bankruptcy and Insolvency Act (or BIA) as an alternative to filing for bankruptcy, offering Canadians the opportunity to repay their debts at a reduced rate.
So how much does a consumer proposal cost? The amount of your monthly payment will be determined based on the total of your debts, your ability to pay (by a calculation of your income and expenses) and the length of the proposal agreement. In most cases, debts are reduced by 50 to 70%.
Legally, there are certain expenses associated with a consumer proposal, which are as follows:
- $750 payable on filing a copy of the consumer proposal with the official receiver
- $750 payable on the approval of the consumer prop osal by the court
- 20% of the money distributed to creditors under the consumer proposal, payable upon distribution
- Costs of the required counselling
- Filing fee
- Registrar’s fee
- Applicable federal and provincial taxes for goods and services.
These consumer proposal fees are regulated by the federal government under the BIA and in most instances are incorporated into the monthly consumer proposal payment. In the majority of cases, you will only pay the amount that has been agreed upon in the consumer proposal, nothing more.
In order for your consumer proposal to be legally binding, a majority of your creditors must agree to the terms established by the trustee. Once the terms are agreed upon, you will begin making payments to your trustee for distribution to your creditors. Generally, in order for your proposal to be accepted, your trustee must offer your creditors more money than they would receive if you were to file for bankruptcy.
You must also be able to make the payments that you are proposing. Your trustee will do a close examination of your finances to calculate a payment you can afford.
One of the greatest benefits of a consumer proposal over bankruptcy is once your payments are agreed upon, they will not change unless your trustee renegotiates the terms on your behalf. This means any inheritance, tax refund, or change in income belongs to you. While you are welcome to pay off your proposal early with a lump sum payment, you are not required to. A bankruptcy filing would require the surrender of any financial windfall or contribution of surplus income to the bankruptcy estate.