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How likely is it that my consumer proposal will be accepted?
A consumer proposal is an alternative to bankruptcy set out in the Bankruptcy and Insolvency Act. It is a legally binding payment plan to pay a portion of your debt back to your creditors. In order to file a Proposal you must go through a federally licensed Trustee in Bankruptcy. They will assess your financial situation and come up with a payment plan that you can afford. The length of the plan can be up to 5 years, although 3 to 4 is more common. Once a proposal has been crafted it is put to creditors for approval. If more than 50% of you creditors (by dollar value of debt) agree to it, then the Proposal is binding on all your creditors.
So how likely is my proposal to be approved?
Most proposals are approved because they make good financial sense. You and your Trustee put forward a plan that results in your creditors getting substantially more money than they would if you assigned yourself into bankruptcy. Though it is over a longer period of time, your creditors get to recover more of what they are owed. However, if they feel the amount offered is to low then they may refuse the Proposal.
Sometimes a Proposal will not be rejected outright, but instead a creditor will return with a counter offer. In order to do this they must request a meeting of creditors. If you accept this counter offer, then the proposal is amended and the new plan goes forward.
So what happens if my Proposal is rejected outright?
If your proposal is rejected, then you have three options; you can assign yourself into bankruptcy, you and your Trustee can prepare an amended proposal and submit it to your creditors again, or you can return to dealing with your creditors on your own.
If there is still wiggle room in your budget, then amending your proposal may be the right path for you, there are no extra fees from your Trustee for an amendment. However, if your original proposal was the maximum you could afford then you should consider filing for bankruptcy.
Can I default on my Proposal?
If you miss three payments on a consumer proposal, then you are considered to have defaulted, the proposal is dissolved, and you are back where you started. While a proposal can be reinstated if certain conditions are met, there is little point putting forward a proposal that you are going to struggle to stick to.