Consumer Proposals

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A consumer proposal is an alternative to bankruptcy. In a consumer proposal a settlement is made with your creditors (the people you owe money to). Here’s a typical example:

You live in Cambridge, Ontario. You bought your house in Cambridge a few years ago, and it has gone up in value. Unfortunately the price of gas and your mortgage payments have also increased. You were out of work for a period of time. You are back to work now, earning a good income, but your debts are more than you can handle.

If you were to sell your house you would generate $15,000 in cash, but you have $40,000 in debts owing to credit cards and a line of credit.

You don’t want to go bankrupt, because you are afraid that you may lose your house, but you have too much debt to qualify for a debt consolidation loan or a second mortgage. What can you do?

The solution may be to file a consumer proposal. It may be possible to file a consumer proposal where you offer to make payments of $400 per month for the next 50 months, or $20,000 in total. You make the payments to the administrator of the proposal (a firm such as Hoyes, Michalos & Associates Inc.), and the administrator distributes to each creditor their share of the $400 monthly payment.

Why would the creditors agree to take payments totaling $20,000 over more than 4 years, when the total debt is $40,000? In many cases the creditors will agree to a consumer proposal because they don’t want you to go bankrupt.

In a bankruptcy, it is possible that the house would be sold and the $15,000 received would go to the creditors. The creditors, however, have no guarantee that they will actually receive $15,000; the house could sell for less than that amount.

In a consumer proposal, the creditors are guaranteed to receive $20,000, which is more than they would probably receive in a bankruptcy.

The consumer proposal becomes a “win-win” situation: the creditors receive more than they would get in a bankruptcy, and you don’t lose your house, and you only have to make one reasonable payment each month.

A proposal may not be the correct option for everyone. If you don’t have the income to support payments each month, a proposal may not be the correct option. However, for many residents of Cambridge that own a house, or have the ability to repay at least a portion of their debts, a consumer proposal may be a great alternative to bankruptcy.

Please contact us for more information, and to determine if a proposal is the correct option for you.

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