Consumer Proposals Windsor

There are 3 rules to having the greatest success in filing a proposal

1. You must offer more than your creditors would get in a bankruptcy. Think about it this way. If in a bankruptcy your creditors would get 30 cents on the dollar, why would your creditors agree to a proposal of 20 cents on the dollar. Creditors generally want about one-third of their money back.

2. You must be able to make the payment each month. You might have the greatest intention, but if you can’t show that you can afford it, your creditors are less likely to agree to it. Try making a household budget so you can see how much money each month to pay into a proposal.

3. You must file a consumer proposal with a consumer proposal administrator licenced by the federal government. A debt consultant cannot do it for you.

Follow these rules, and its likely your proposal will succeed.

New guidelines were released by the Office of the Superintendent of Bankruptcy about surplus income limits in bankruptcy.

The goods news is that increase in the guidelines means that people in bankruptcy can earn a little bit more before they are penalized with extra payments.

The surplus income calculation can be overwhelming. If you are single and get a salary each month it is straightforward. But what happens if you are married and you are filing for bankruptcy, but your spouse isn’t? There is a calculation for that. What happens when you have a 5 pay month? What happens if you have a baby during your bankruptcy, or your oldest child leaves home? There are calculations for all of that too. The length of time you are in bankruptcy will also depend on whether or not you have surplus income.

Who ever thought filing for bankruptcy would mean you would have to monitor your income so closely? Do you think that might add some stress to your bankruptcy? Imagine finding out your bankruptcy is going to be extended just because you worked a few shifts of overtime.

Today I met with Joe and his wife Elizabeth (not their real names). Joe came to see me about his options and Elizabeth was there for support and information. Joe lost his job a year ago, and is just getting back to work. He and Mary’s take home income is over the surplus income guidelines. I calculated that Joe’s surplus income payment would be $321 per month, and since he hasn’t file for bankruptcy before, he will pay this for 21 months. Joe then told me that during the summer he will be working a lot of overtime, and he is also eligible for performance bonuses. I explained to him what this means in a bankruptcy.

I then told Joe about consumer proposals. Based on his debt, a payment plan of $200 per month for 48 months is likely to be accepted. Why? It means the 3 conditions I have written about before. His offer is better than a bankruptcy, he can afford it, and he is offer a reasonable rate of return to his creditors (in this case 27%).

By filing a consumer proposal, Joe avoids having to worry about surplus income payments and how much he will have to pay each month. Now when Joe works overtime and gets a performance bonus, he can pay make an extra payment to his consumer proposal instead of being penalized in a bankruptcy.

When I meet with people in my Windsor office to explain a consumer proposal, a common question is “what is the catch”.  It doesn’t make sense that their creditors would be willing to accept less than full payment on their debt.

Think of it this way.  If you aren’t able to make full payment on your debt your balance isn’t getting smaller. Maybe you aren’t even making your minimum payments. Your creditors have to keep calling you for payment and eventually they may even turn the account over to a collection agency or begin court action. All of that takes time and money. If you offer a consumer proposal, they can stop their collection activity.

Another concern people have is they think filing a consumer proposal just puts a hold on the collection of the account. It doesn’t just put a hold on it, it stops it. For instance, if you have $20,000 in debt and your consumer proposal is for $12,000, that is all you pay. It doesn’t mean that you have to pay the reminder of your debt (in this case $8,000) later.

Keep in mind that filing a consumer proposal is a serious commitment. You need to be able to make monthly payments for up to 5 years. It does put on a mark on your credit, but lets face it, if you are behind on your bills you already have a mark on your credit.

A few months ago I met with someone who is filing a consumer proposal. I will refer to her as Sally (not her real name). Through our discussions I discovered that she had previously enrolled in a debt management plan. To Sally’s credit she went with a firm that is recognized and accredited. She didn’t choose a firm that had any of the warning signs I have mentioned before. The debt management plan wasn’t going to work because not all of her credits would agree to it.

She had obviously done a lot of research and I asked her what made her enroll in the debt management plan first. Her answer was “it was easy”. Sally told me all she had to do was to complete some on-line forms and answer questions on the phone. She never had to meet with anyone so she wasn’t having to deal with the embarrassment of her debt problems.

She knew that to file a consumer proposal she would have to come to our office a number of times for meetings and didn’t feel comfortable with that. I understand that. It can be hard meeting with a stranger and discussing something as intimate as money problems. After all, it’s not something we generally talk about everyday, even with our friends.

However, we went through her situation and filed a consumer proposal. All creditors accepted it and Sally is happy. I know what you are thinking. Why would a creditor reject a debt management plan and yet accept a consumer proposal. Who knows? But we have seen that before. I guess maybe the creditor would rather deal with a plan that is approved by the court.

The lesson here is, do your homework and call us at 310-PLAN if you need help dealing with your debt.

Shortly after I posted my article entitle“What is this new government program to reduce debt?”, the Financial Consumer Agency of Canada issued an alert and press release warning people to be aware of offers that seem too good to be true.

I am happy to read that the government has finally issued a warning about these companies. In fact, the story was highlighted on Lang and O’Leary Exchange.

If you start watching the video at 49:38 Ms. Lang questions Ms. Jara from Credit Canada about such payment plans and better options that are available. What is interesting is the comment at 53:16 – what does Ms. Jara mention? Consumer proposal.

I understand the mass of information that is available when you are sorting out the options to manage your debt. I just wanted to give you a bit more information about the options available and offer opinions from third parties.

As mentioned in the alert and interview, do your research.

We have all heard the radio ads, seen the TV commercials or the internet ad about a new government program available for a limited time to help Canadians reduce their debt.

Remember that old saying “if it sounds too good to be true it probably is”? Well, you guessed it, there is no such government program. If there is, don’t you think the Canadian government would be promoting it and wouldn’t everyone be enrolled? After all, who wouldn’t like to have their debt eliminated through some mysterious means.

What is available is what this blog is all about, a consumer proposal. A consumer proposal is the only formal procedure available in Ontario governed by the Bankruptcy and Insolvency Act to reduce your unsecured debts. It is not a new program. Consumer proposals have been around longer than I have been in this field, and I have been working in this area since 1996. Consumer proposal are not available for a limited time only. They are written into legislation and unless the Government changes the law, they will here to stay.

I “googled” “debt reduction Canada” to see what would happen and 2.4 million results came up. I saw 12 different companies (and 1 bank) touting debt reduction programs in the first 2 pages. It is no wonder that people are confused by all of the options available. If you are in need of financial advice, let me offer you advice on what you need to look out for before you agree to any debt reduction program.

Use caution when dealing with anyone who:

- will only deal with your online or on the phone
- is not located in your locality or a major city near you
- will charge you fees to meet with you
- won’t file any paperwork until you pay them money
- guarantees results
- uses a hard sell approach
- does not offer money management counselling services as part of the debt reduction program
- tries to enroll you in a program without reviewing your entire financial situation

But the most important thing to remember is to call us at 310-PLAN for advice.

What are the steps to file a consumer proposal?

1. Call our Windsor office at 519-250-8060 or 310-PLAN to arrange a meeting.

2. At this meeting, we review your income, assets, debts and budget and we formulate a consumer proposal that makes sense.

3. You complete the fresh start application form and gather any necessary paperwork that may be required. Once you return the paperwork needed, we need a few days to prepare the paperwork.

4.You return to our office a few days later to sign your consumer proposal papers. We then electronically file your consumer proposal with the government and send out notice to your creditors.

5. You make your first payment within 30 days of filing. For your convenience, we can arrange per-authorized payments from your bank account.

6.. Your creditors vote on the consumer proposal. This is normally done via mail. The vote takes place 46 days later.

7. You attend 2 budgeting sessions with an accredited credit counsellor.

8. You continue making payments until your consumer proposal is paid in full.

That’s it. Your consumer proposal is complete. You are well on your way to your fresh start.

If you want to get started, just give us a call at 519-250-8060 or 310-PLAN.

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In previous entries I have written about the three conditions creditors want when reviewing a consumer proposal. The debtor must offer more than bankruptcy, offer a reasonable rate of return, and be able to afford it.

But what happens when you meet all 3 conditions and the bank still votes “no” on your consumer proposal?

This can be a frustrating situation for both the trustee (that’s me) and the debtor (that’s you). However, in many cases the bank offers a counter offer which is reasonable. For instance, they may ask for the same amount of money each month but for another six months or a year. Why do they do this? A few banks seem to look beyond the three conditions and also look at the debtors age. Recently, Big Bank A, asked for another year of payments in a consumer proposal. When questioned, they advised that since the debtor was young, they felt he should be offering a five year consumer proposal. Ok, that makes sense, except that this was the first and only time I have seen this.

I have also noticed that some Big Banks are strict on what they see as “personal expenses“. Now don’t get more wrong, I am not saying you should be able to file a consumer proposal and still save enough money each month to go on a trip a fancy resort every year. What I don’t understand is the Big Bank telling you that you shouldn’t allow your children to have after school activities or that once you file a consumer proposal you aren’t allowed to donate to your favourite charity. As long as the amounts are reasonable, these expenses shouldn’t be the reason Big Bank votes no. Afer all, is donating $10 a month to a charity really going to affect Big Bank?

Lately the voting of one of the Big Bank (lets call them Big Bank B) has everyone perplexed. Back in the good old days of 2010 they had a routine to their voting. We knew that they wouldn’t accept a consumer proposal of less than 29% return, so we made sure debtors were aware of that. Now, we don’t know what they are doing.

Here is just one recent example. A few months ago Big Bank B voted against a consumer proposal filed by Jill (not her real name). Even though Jill is low income, she didn’t want to file for bankruptcy and instead filed a consumer proposal. The 3 conditions were met. In fact the rate of return she offered was 35% where a bankrutpcy would have given them a minimal amount of money back. Big Bank B countered back with a payment that was double what the debtor offered. Based on Jill’s income, she would not be able to afford this payment. It seems strange that Big Bank B would make a counter offer that they should have clearly been able to see she couldn’t afford. She still didn’t want to file for bankruptcy, and offered to increase her payments by $25 a month. Big Bank B accepted her offer. If they would have accepted $25 more, why did they ask for $200 more?

It might seem like it was a simply matter to get his resolved, but it wasn’t. We don’t communicate with Big Bank B – we communicate with their agent. We send the paperwork to the agent, who then sends it to Big Bank B, who responds to the agent, who responds to us. If it sounds time consuming it is. And frustrating for both us and the debtor.

I could go on and on with examples of how frustrating it can be to deal with Big Bank B, but I won’t. I will save that for another entry.

I just want to know what they are doing.

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