How Are Consumer Proposal Payments Calculated in Canada?

Posted on June 25, 2023 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

Unfortunately, there is no consumer proposal payment calculator for Ontario or Canada. The cost of a consumer proposal varies in each case, depending on income, assets and debts. However, consumer proposal payments typically come to about 30-40% on the dollar. 

The logical follow-up question is: How are consumer proposal payments calculated in Canada? This blog will answer this question and give you insight into what to expect.

A Licensed Insolvency Trustee, the only professional allowed to create and submit consumer proposals, will work with you to determine how much you can realistically afford to offer your creditors.

Call Chande Debt Solutions today at 416-366-3328 or fill out our convenient online form to learn more about how we can help you recover financially.

What are Consumer Proposal Payments & Their Elements?

In a consumer proposal, a Licensed Insolvency Trustee (LIT) will thoroughly review your financial situation with you, considering all debts, assets and income to determine a monthly payment you can realistically afford.

In the next step, the LIT will prepare a consumer proposal to send to your creditors, outlining the repayment terms, including the amount you will pay and the time you have to pay it. 

Once your creditors approve the proposal, you will make monthly payments to your LIT, who will distribute the funds per the consumer proposal’s terms.

What are the Factors that Affect Consumer Proposal Payments?

One of the most common questions is: “How much does a consumer proposal cost?”

Three major factors affect your consumer proposal payments.

  • How much money do you owe, and to who,
  • If you have any assets or what you would have to pay in the case of bankruptcy, and 
  • Your budget and whether you can afford the payment.

So, any of these three factors or combinations will influence your monthly consumer proposal payment calculation.

Before figuring out what the monthly payment should be, however, it is critical to properly examine your financial situation to determine if a consumer proposal is the best solution for you in the first place. Ultimately, the goal is to ensure that you can afford the monthly payment on your family’s budget, that the offer to your creditors will give them more than what they would likely be able to recover in the event of personal bankruptcy and finally, that your offer is high enough for your creditors to accept the proposal.

As everybody’s financial situation is different, it is crucial to thoroughly review your complete financial information before deciding how much to offer your creditors.

How are Consumer Proposal Payments Calculated in Ontario, Canada?

Calculating your consumer proposal payment consists of three steps before the proposal can be prepared and filed.

Step by Step

Step 1: Calculate Expected Recoveries

As mentioned above, one of the goals of a consumer proposal is to ensure your creditors recover more than they would in the event of personal bankruptcy. 

For example, in the event of bankruptcy, you must calculate how much equity there might be in a house and your income. The higher your income, the higher the so-called surplus under the Bankruptcy and Insolvency Act. These two factors are crucial to determining how much your creditors could recover in the event of bankruptcy. This amount will give the first indication of what the minimum payment offered in the consumer proposal should be.

Step 2: Understand Creditor Expectations

One reason your LIT must know not only the amount you owe but also who you owe it to is that not all creditors will have the same expectations. Some companies may require minimum payouts, while others will carefully review your proposal and budget plan to ensure they are satisfied that the offer is the best you can give them.

It is important to note that consumer proposal payments will be lower in almost all cases than in other debt-relief options.

Step 3: Calculate Your Monthly Payment

Once the first two steps have been made, you can finally take the final step: Calculating your monthly payment. The calculation itself is pretty simple. You take the proposed total payout based on steps 1 and 2 and divide it by the number of months of your proposal.

In a consumer proposal, the maximum length is 60 months (5 years), so for the lowest possible payment, the total proposed amount will be spread over the whole number of months, so your LIT must have all numbers available to calculate your budget and ensure that you will be able to pay the proposed payment consistently.

At this stage, you can run different scenarios with different lengths to see which monthly payment you can afford to shorten the term of your consumer proposal. Depending on your circumstances, you could even offer a lump sum payment.

Conclusion: Get Your Consumer Proposal Calculated Professionally with Chande Debt Solutions 

As you can see, calculating your consumer proposal payment is a lot more than just adding and dividing numbers. It takes experience to weigh the expected realizations and creditor expectations against your assets and budget. It is critical to remember that a consumer proposal is a legally binding document that can reduce the amount of debt you have to repay by up to 80%, so it is crucial to carefully review every bit of your financial situation, as every detail can affect your consumer proposal and payments.

The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well informed and don’t rush into any solutions. All of our consultations are free, without time limits.

Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

Frequently Asked Questions

What Percentage Do You Pay Back in Consumer Proposals?

While the actual percentage will depend on your financial situation, a consumer proposal can save you up to 80% of your unsecured debt included in the consumer proposal.

What is the Maximum Payment for a Consumer Proposal?

Consumer proposals have a debt limit of $250,000. Within this limit, there is no maximum payment; you can pay back the total amount if you can afford it.

What is the Credit Score During a Consumer Proposal?

When filing a consumer proposal, you will have an R7 rating, which means “very low.” This rating will remain on your file for 6 years from the date the proposal has been filed or 3 years from the day the proposal is complete, whichever comes first.

What Happens if I Miss a Payment During a Consumer Proposal?

If you miss three monthly payments or one payment by more than three months (if you aren’t on a monthly payment schedule), your consumer proposal is automatically annulled. If this happens, all agreement terms are also cancelled, meaning any interest rates and penalties on your debts can be reinstated.

Can my Consumer Proposal Payments be Changed Over Time?

If your financial situation significantly changes, for example, if you are laid off, you can apply for an amendment to your consumer proposal. However, you must remember that all creditors must agree to the amendment again.

Can I Make Additional Payments Toward My Consumer Proposal?

You can make additional payments toward your consumer proposal at any time. You can either increase your monthly payments or make a lump sum payment that will be applied to the remaining debt you owe.

Can I Pay Off My Consumer Proposal Early?

Yes, you can. Because a consumer proposal is a government-regulated debt repayment plan, you can pay off your consumer proposal early without penalties or restrictions.

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Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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