Quick answer – there isn’t a standard percentage that debts are reduced by in a consumer proposal.

Like most days, I received a telephone call this morning asking what percentage of debt a consumer proposal must offer to creditors.  Many websites promote that you can reduce your debt by up to 80 percent but don’t fully explain that there are other factors to consider in determining what amount to offer to creditors in a consumer proposal.

First, a consumer proposal must offer to your creditors more than they would receive in a bankruptcy.  This makes sense because why would your creditors accept a proposal that gives them less than they would receive in a bankruptcy?  A Licensed Insolvency Trustee will review your financial situation in detail to determine what would be realizable in a bankruptcy:

  • Assets with a value that exceeds any secured debt or provincial exemption (GICs, RESPs, house equity if greater than $10,000, vehicle if value exceeds $6,600, trailers, etc.);
  • Surplus income payment obligation – if your income exceeds a threshold that has been set by the Superintendent of Bankruptcy based on your family size then you would be required to make surplus income payments for 21 months (1st time bankruptcy) or 36 months (2nd time bankruptcy); and
  • Any transfer of assets or preferential payments that have been made.

Second, the trustee must ensure that you can afford the payment terms that are being offered to your creditors either based on your budget or a third party providing the funds.  The consumer proposal must be completed within five years.

Finally, the trustee will look at who you owe money too.  We have been filing consumer proposals for a long time and are familiar with the recovery rate that certain creditors are willing to accept in a proposal.

Based on these factors, a trustee will be able to fully explain your options and the percentage of your debt that can be offered in your proposal. Contact us at Fresh Start Now and we will be happy to discuss your financial situation and find the best solution for dealing with your debt problems.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)