Why would Creditors Accept a Consumer Proposal in Ontario?
A consumer proposal is a formal and legal offer to creditors that sees a person pay back only a portion of their debt in exchange for having the remainder of the debt forgiven. At first glance, it probably seems confusing that any creditor would accept a consumer proposal in Ontario or in any other province. After all, why would they take less than is owed to them? However, the majority of consumer proposals are accepted.
The main reason is that creditors know that, if a person is filing a consumer proposal, they are having difficulty paying back their debts. They know that this person will probably not be able to pay the full amount owing. Therefore, creditors are willing to accept less in order to ensure that they get something.
If you are in a position where you are filing a consumer proposal, your creditors also understand that, if the proposal is not accepted, you may have to file for bankruptcy. When a person files for bankruptcy, depending on their assets, creditors generally do not get very much if anything at all.
When a trustee prepares an Ontario consumer proposal for a client, he or she looks at a person’s financial situation as well as his or her assets. The trustee then calculates how much the person can afford to pay the creditors and this becomes the basis of the proposal. Once that is done, the trustee prepares the consumer proposal which is submitted to the creditors for acceptance. In most cases, the offer in the proposal is more than what creditors would get in bankruptcy. This makes it likely that the proposal will be accepted.
Creditors also consider the cost of any legal action that they would have to take in order to collect their debts.. Creditors can save both time and money if they accept a consumer proposal and they are assured of at least recovering some of the amount owed.
An Ontario Consumer Proposal is a Legal Process
Most creditors have had extensive experience working with consumer proposals and because it is predictable, legally binding and required no administration on their behalf creditors are likely to accept it The bankruptcy trustee who files the proposal is bound by the terms of the Bankruptcy and Insolvency Act of Canada. This act also governs the Office of the Superintendent of Bankruptcy and all trustees of bankruptcy.
Since a consumer proposal in Ontario is a legal process, creditors are more likely to accept the terms. They know that they are much more likely to receive their payments this way than with many other types of debt settlement.
The consumer proposal process also means that, if the majority of your creditors accept the proposal, then the remaining creditors are also bound by its terms.. A person does not have to individually contact each and every creditor and work out a deal to pay a lower amount than is owed. Instead, the bankruptcy trustee prepares the consumer proposal, the creditors vote on it and, if more than 50% of the creditors accept it, the proposal is approved. It is a much more straightforward and simple process for everyone involved.
Other Consumer Proposal Advantages
There are a number of advantages to filing a consumer proposal. Not only is it likely to be accepted by creditors, but may cost you significantly less than many other debt settlement or debt consolidation methods. A consumer proposal can see you pay as little as 30% of the overall debt that you owe depending on your individual circumstances. The rest of the debt is discharged when the proposal is successfully completed.
Another significant advantage is that all actions by creditors to collect their debts stop when a consumer proposal is filed. This sort of protection is very important. For example, any legal action including wage garnishment must stop when a person files a proposal. The funds that may have been garnished for the future are then freed up and can be used to pay the proposal.
In fact, when you file a consumer proposal in Ontario, your creditors are no longer able to speak to you directly. Collection agencies are no longer able to call either. All communication with creditors is done by the bankruptcy trustee. This eliminates a lot of stress and hassle from your life.
As you can see, there are many advantages to filing a consumer proposal in Ontario, for the person filing but also for the creditors.