Consumer Proposals From the Creditor's Perspective; 3 Questions Every Creditor Will Ask Themselves
A consumer proposal is an alternative to bankruptcy. But, a consumer proposal is just that – it’s a proposal to your creditors to settle your debts for something less than full payment – your creditors don’t have to say “yes” to what you are offering them.
When making a proposal to your creditors you are asking them for permission not to pay them what they are owed, and they do not take that lightly.
When deciding whether or not to accept a consumer proposal, your creditors will compare what your proposal is expected to yield versus what a bankruptcy might reasonably be expected to generate for a recovery.
So, for the most part, this is just math. However, creditors are not robots, their decisions may not only hinge on objective factors. Creditors are people too and subjective aspects may weigh into their decision-making.
Creditors Are People Too
Consider how a creditor might feel about the following when considering whether to accept or reject a consumer proposal:
1. Is the lifestyle of the debtor (you) expected to change?
Creditors often make the argument that “the debtor is keeping their cottage / ATV / camper trailer/motorcycle, etc. while we are being asked to compromise our debt”. Creditors want to know that your proposal is offering a monthly payment representing everything that you can reasonably be expected to afford. It is a difficult pill to swallow for a creditor when monthly payments toward unnecessary assets are equal to, or greater than, what you are offering to pay to settle your unsecured creditors.
2. Is the behaviour of the debtor expected to change?
We live in a time where most of us use some form of social media, ie. Facebook, Instagram, Twitter, or the like. Your creditors may be looking at your public profile(s). It is difficult to say “yes” to a consumer proposal when creditors see pictures of vacations/parties / sporting events/concerts / etc. taken near the time of your proposal (or worse, during the period they are given to consider your proposal). Even if those events were funded by someone else, creditors looking at the pictures can’t tell the difference.
3. Is the debtor’s spouse involved?
Sometimes a debtor’s spouse’s income is not disclosed to the creditors, and this is perfectly legitimate. However, it also raises suspicions on the part of the creditors. Even though the debt may be fully yours, creditors will often take the position that the whole household likely benefitted from the debt and the whole household should be involved in paying it back.
Consumer proposals have a number of benefits over bankruptcy. By law, a consumer proposal must be reasonable – simply put it should offer your creditors a better return than what can be expected in a bankruptcy. However, if one or more of the above scenarios apply, you may need to offer your creditors more than normal in order to convince your creditors to say “yes”.
Sometimes the above factors can be explained and justified. If this is true for you and you are contemplating a consumer proposal, be up front and open with your Trustee so they can describe the circumstances to your creditors.
Debt affects people on both sides of the ledger. Understanding this should inspire the respect it deserves because there is life after debt and reputations are important.