How much does a Consumer Proposal cost?

It truly does depend

It’s impossible to tell someone how much they’ll have to pay in a Consumer Proposal without first investigating their personal and financial situation. Any person or website that gives you a dollar amount or a percentage of your debt that you’ll have to pay, without first conducting such an investigation, is simply not a credible source. A credible source might say something like “it is possible to obtain relief from your debt by paying just 20% of the amount you owe”, which is true because it is possible, but it may turn out not to be possible for you, depending on your circumstances.

The fact is, amount you’ll have to pay to make a successful proposal depends on a lot of things, including:

• The value of your assets
• How much income you earn
• How many people live in your household
• The amount of debt you owe
• Who your creditors are
• Who you engage to help you file a proposal

Even after reviewing this information, it’s impossible for an LIT to give you a definitive number that you'll have to pay, as it’s not the LIT who decides. A Consumer Proposal is a negotiation between you and your creditors, with the LIT essentially playing the mediator. Whatever you offer, your creditors have the ability to accept it, reject it, or ask for more. That said, an LIT provides guidance on what to offer based on the factors mentioned above.

How do these factors affect how much you have to pay?

1. The value of the assets you own

Your creditors will expect your proposal to pay them at least what they'd get if they hired a lawyer to sue you and seize your assets, or if you filed a bankruptcy. In either of those cases, if you own any assets that are not protected according to provincial laws, they’d get the value of those assets (after deducting what you owe to secured creditors, like a mortgage company). The LIT will calculate this value and include it in the amount you have to pay.

2. How much income you earn

To ensure you’re offering your creditors at least what they’d get if you filed a bankruptcy, the LIT reviews your income to determine if you would have to make “surplus income” payments if you filed a bankruptcy. Surplus income occurs when you earn more than the federal government says you require to cover your basic expenses. So the more you make, the more you have to pay in a Consumer Proposal.

3. How many people live in your household

If there are others in your household who are earning money, or alternatively are dependent on you to support them, this will impact the amount of “surplus income” you'd have. Depending on the number of people and how much they earn, this could either increase or decrease the amount you have to pay.

4. The amount of debt you owe

Your creditors typically want to see a reasonable amount of their debt paid in a proposal, no matter your assets or income. So even if you’re offering more than they’d get otherwise, your creditors might not be willing to accept a Consumer Proposal if you’re only paying a tiny percentage of their debt. Therefore, the more you owe, the more you usually have to pay.

5. Who your creditors are

Some creditors are less willing to consider a Consumer Proposal, particularly one that’s offering significantly less than full payment. This is often due to their internal policies, although those policies can change over time. LITs have experience dealing with a wide range of creditors, including banks and credit card companies and even Canada Revenue Agency, so they’ll have a good idea of what each creditor might require to convince them to approve your proposal. As such, the LIT may recommend you offer more or less than a person in similar circumstances who owes money to different creditors.

6. Who you engage to help you file a proposal

When you file a Consumer Proposal with an LIT (which is a requirement, as only LITs can administer Consumer Proposals), the LIT’s fee is paid (deducted) out of the money you’re offering to pay your creditors. The amount they’re paid is a standard, government-set, calculation, so generally speaking the fees of one LIT or another will be the same for the same proposal, but it'll typically always be coming out of the amount you and your creditors have agreed you’ll pay.

However, if you first approach a debt consultant to discuss your Consumer Proposal, they’ll charge you a separate fee for their advice and assistance, which you pay directly to them. They’ll then refer you to an LIT to administer the proposal. So you’ll usually pay more overall in fees by starting with a debt consultant than if you approach an LIT directly. Some debt consultants claim that you’ll pay less overall if you engage them for advice, as they say they can negotiate a lower Consumer Proposal payment. While they certainly may advocate for you to pay less than the LIT would have recommended, keep in mind that it is still up to the creditors to decide whether to accept your offer. The debt consultant does not deal directly with the creditors, so their assistance is not guaranteed to result in you paying less to your creditors.

How to figure out what you'd have to pay

All of the above information, and any other relevant factors unique to your situation, will be factored into the amount you have to pay. When you’re considering making a proposal to your creditors, an LIT will estimate the amount you’ll have to pay, but the ultimate decision is up to your creditors. It’s not always easy to predict how some creditors will respond, but the LIT’s analysis and experience will help you come up with a good offer, and the LIT will provide a report to your creditors explaining the offer and why they’d recommend the creditors accept it.

To figure out what you’d have to pay in a Consumer Proposal, your best bet is to make an appointment for a consultation with an LIT. Most LITs offer free consultations so you can figure out what your options look like without having to pay for their advice.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review whether a Consumer Proposal is right for them. If you would like a free, no-commitment consultation to review your options, contact us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.