Fees For Filing A Consumer Proposal

How Much Does A Consumer Proposal Cost?

If you are in need of a form of debt relief, you may well be assessing the associated costs. Each form of debt relief varies in terms of cost, but the most important consideration should be choosing the most appropriate form of debt relief for you. A consumer proposal is an increasingly popular form of debt relief in Canada, and it can reduce your debt by up to 80%. As well as reducing your overall debt, it enables you to keep your assets, provides a strong alternative to bankruptcy, and offers protection from your creditors. In this article, we explain the costs associated with a consumer proposal so that you can make an informed decision as to whether or not to file one. So, how much does a consumer proposal cost? With over thirty years’ experience of filing consumer proposals in Canada, in this article we explain the true cost of filing a consumer proposal.

How much can you save with a consumer proposal?

A consumer proposal is a legal form of debt relief backed by the Bankruptcy and Insolvency Act. It is the process of working with a Licensed Insolvency Trustee to determine a manageable monthly repayment figure that is affordable for you to make towards your debts. Your trustee will then negotiate with your creditors on your behalf. Often, consumer proposals can reduce your overall debt by up to 80%. A consumer proposal needs to work for both you as the debtor and your creditors, although it is often easier to get a healthy reduction in your debt as creditors would rather accept a consumer proposal than receive less through a bankruptcy. For debtors to succeed with a consumer proposal, the monthly repayments need to be manageable depending on your unique financial situation. As well as being a good alternative to bankruptcy, advantages of a consumer proposal include the ability to keep your assets, and protection from your creditors and collection calls via a stay of proceedings. A stay of proceedings is automatically generated once a consumer proposal is filed.

How much does a consumer proposal cost?

Ultimately, the cost of a consumer proposal is dependent on your personal circumstances. The amount you will need to repay for a consumer proposal relies on a few key factors:

Your income, and any surplus income you would need to consider for a bankruptcy
Any assets you have that would be surrendered in a bankruptcy
The creditors to whom you owe money – different creditors will expect different outcomes from a consumer proposal

Once the above factors are considered, you will then work with your Licensed Insolvency Trustee to establish a realistic and affordable consumer proposal to repay each month. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, and they are legally required to file a consumer proposal. A consumer proposal can last up to five years, so your payments can be spread out across this time period. As a working example, if you were to meet your trustee and discover a bankruptcy would cost you $500 per month for three years, this would total around $18,000 in total. If, however, you were to offer your creditors $350 a month for 60 months as part of a consumer proposal, this would total $21,000. A consumer proposal is preferential in this instance as you can pay less per month than in a bankruptcy while keeping your assets. Your creditors are likely to agree, too, as they will receive slightly more over time. You will only pay the monthly payments agreed in your consumer proposal, and no additional fees. Although every circumstance is different, generally speaking a consumer proposal can reduce your debts by up to 80%. Try our debt calculator to work out how your monthly repayments could look.

How are consumer proposal payments determined?

The payments you will make as part of your consumer proposal are negotiated between yourself and your creditors. Of course, the role of your Licensed Insolvency Trustee is to help and advise you as part of this process. They will review your financial circumstances and recommend an amount to make to your creditors. You have up to five years to pay your consumer proposal, and there is no interest rate on these payments. You have the option to make lump sum payments on your consumer proposal too, and you can pay it off early if you wish.

What if your financial circumstances change during a consumer proposal?

If your income increases during your consumer proposal, you can adjust your repayment plan to finish your consumer proposal sooner. This can be adjusted in a way that suits you – perhaps you make smaller payments initially, and increase them over time as your financial situation stabilizes. If, on the other hand, your financial circumstances deteriorate, you are able to defer only two payments during a consumer proposal. If you miss any more than two, your consumer proposal will fail. If your consumer proposal fails, your total debt will return. It also means that your creditors can restart collection calls and threaten legal action like a wage garnishment. If you suspect you will miss a third payment, you should speak to your Licensed Insolvency Trustee immediately. They can help you before your consumer proposal fails. They can try to negotiate with your creditors, and file revised payment terms. If your creditors accept this revised consumer proposal, you can continue with these new terms until your proposal is completed.

How can a consumer proposal make life easier for you?

Although initially filing a consumer proposal can seem like an arduous task, it can certainly have a positive impact on your future. It reduces your monthly debt payments overall, and means you can begin to save money. Equally, you will experience an initial knock by having to surrender your credit cards with some initial impact on your credit score. You will receive a note on your credit report to show that you have filed a consumer proposal, which will remain for six years from the date of filing. As soon as you file a consumer proposal, however, you can begin to rebuild your credit score. When you are a few months into your consumer proposal, you can apply for a secured credit card. This is the quickest way for banks to regain confidence in you, if you are able to make consistent payments on time. Eventually, this will allow your credit score to rise even while you are in your consumer proposal. Learn more about life after consumer proposal.

How does a Licensed Insolvency Trustee get paid from a consumer proposal?

You may think that filing a consumer proposal is a way for Licensed Insolvency Trustees to charge you fees, although this is far from the reality. The cost of administering your consumer proposal is actually factored into your agreed monthly payments. No additional costs are charged as part of the consumer proposal fee – everything is included in the amount you negotiate with your creditors. Any fees paid to a Licensed Insolvency Trustee are set by the Canadian government, and come from the monthly payment. This amount over time includes:

An administration fee of $100, paid to the Office of the Superintendent of Bankruptcy
The fees for two mandatory credit counselling sessions, at $85 each
Consumer proposal fees to the Licensed Insolvency Trustee of $1,500 plus 20% of creditor distributions
A 5% levy of creditor distributions, paid to the Office of the Superintendent of Bankruptcy

Once these fees have been paid from your monthly consumer proposal payments, any creditors who have claimed a stake in your consumer proposal will then receive their share of the balance. Instead of you having to pay Licensed Insolvency Trustees on top, your creditors essentially cover the cost of a consumer proposal for you. If you are considering filing bankruptcy, you can compare the cost of a consumer proposal with the cost of filing bankruptcy.

Consumer Proposal Cost: How Much Can You Save?

A consumer proposal is a negotiated debt settlement arrangement arranged through a Licensed Insolvency Trustee. A consumer proposal can result in savings of as much as 70-80% however, the consumer proposal’s cost is based on your personal situation.

The golden rule of a successful consumer proposal is that the cost of a consumer proposal must work for both the debtor and the creditor.

For creditors to accept a debt proposal, they will want to receive more than they would recover if you file bankruptcy.

For a debtor to succeed with a proposal, the payments must be affordable and reasonable, given your financial situation.

How Much Do You Pay in a Consumer Proposal?

The amount you will have to repay in a consumer proposal will depend on three factors:

your income and any surplus income you would pay in a bankruptcy;
assets you own that would be surrendered in a bankruptcy, and
who you owe money to because different creditors expect different consumer proposal percentage recoveries.

While every situation is unique, a consumer proposal can commonly reduce principal repayment to as low as 25% of the original amount owing.

What does a consumer proposal cost

Let’s look at a typical consumer proposal payment plan:

A client who owes $40,000 in unsecured debt may be able to negotiate a settlement as low as $14,000. If they choose to repay this amount over 60 months, their monthly proposal payment would be $233.

Who Negotiates Consumer Proposal Payment Terms?

Consumer proposal payments and terms are negotiated between the debtor and creditor with the help of your licensed insolvency trustee acting as administrator of the proposal. The trustee will review your budget and debts during your debt assessment and recommend how much to offer your creditors.

Your proposal amount can be paid over a period of up to 5 years, interest-free.

Most people choose a fixed monthly payment, spreading their settlement offer over three to five years. However, lump sum payments or adjusting your repayment schedule to match your pay period are options.

Consumer proposals can also be paid off early at any time.

Once your debt proposal is accepted you make one, single payment to the trustee. This makes a consumer proposal a lower-cost alternative to a debt consolidation loan.

What Happens if My Financial Situation Changes?

If you know your income may increase before you file a consumer proposal, you can adjust your payment plan to match. For example, you can arrange for smaller payments during the beginning of the proposal and larger payments towards the end.

If your financial circumstances change for the worse, you may defer up to two payments during a consumer proposal. Unfortunately, if you miss three payments, the proposal fails. Technically, your consumer proposal is ‘deemed to be annulled’ on the date your third monthly payment became due. If your credit proposal is annulled, then your total debts return, and your creditors may take legal action against you. You do not, however, automatically become bankrupt.

If you think you might miss the third payment, you have options available to put in place before your proposal fails. Your trustee can help negotiate and file amended payment terms. As long as the creditors accept this revised proposal plan, you can continue with the new proposal terms until completion. If your situation has changed dramatically, you can also file bankruptcy during any proposal.

Non-Financial Effects of Filing a Consumer Proposal

Filing a consumer proposal has a big impact on your budget. It lowers your monthly debt payments and allows you to build some savings.

There are other consequences of filing a consumer proposal. You will be required to surrender your credit cards, and a proposal will hurt your credit score initially. A note will appear on your credit report and remain for up to 6 years from the date of filing.

However, you can begin the process of rebuilding your credit rating after a consumer proposal soon after you file. We usually recommend you begin the process of applying for a secured credit card four to six months after you have filed. Regular on-time payments on this card will cause your credit score to rise even while you are in the proposal.

How Does a Consumer Proposal Administrator (Trustee) Get Paid?

The cost of administering your proposal is included in your single monthly payment. You do not pay the consumer proposal fee upfront, and no costs are added to your settlement offer. Trustee fees are included in the payment you negotiate with your creditors. If your creditors agree to a deal to accept $350 each month, then that is all you pay.

Licensed Insolvency Trustees are paid to administer consumer proposals.

How are trustee fees calculated?

Fees paid to a trustee for a consumer proposal are set by legislation and are the same across all trustees in Canada.

The amounts paid to a Licensed Insolvency Trustee for a consumer proposal include:

A filing fee of $100 paid to the Office of the Superintendent of Bankruptcy
Counselling fees of $85 for each of two mandatory counselling sessions
Proposal fees to the administrator (trustee) of $1,500 plus 20% of creditor distributions
Levy of 5% of creditor distributions payable to the Office of the Superintendent of Bankruptcy
Unsecured creditors who have filed a claim in your consumer proposal receive any balance from your proposal payments after these fees are paid. In effect, creditors cover the cost of a consumer proposal as part of the deal.