Published: July 14th, 2012 • Last Updated: January 7th, 2021
Author: Ross Taylor on AskRoss.ca

Be careful what you agree to when entering a consumer proposal

This week I met two new clients both in the early stages of consumer proposals. The service they received from their trustee was remarkably different.

The first couple were struggling to make ends meet, with a mortgage, and two kids, notwithstanding net take-home pay of around $6,000 per month. They had owed almost $70,000 in total debts when they went to the trustee – who settled them into a five-year proposal paying $1100 (!) per month. Effectively, their interest was reduced to zero, which certainly helps, but the monthly payment obligation of $1100 after-tax dollars is causing a real strain and they already missed one payment. If they miss three payments, their proposal is automatically cancelled. Not good.

Today I met the husband of a younger couple with no kids. They bring in around $5,900 per month net income. This guy was carefree and stress-free. He had already made a few payments and he had a monthly surplus, after all his expenses, of close to $2,000 – he is saving up for a new house!

He had owed just over $100,000 in unsecured debts, and HIS trustee had negotiated that down to only $425 per month for sixty months. This means he will pay back only 25% of his original debt load, whereas the first couple will pay back almost 95% of their original debt.

This discrepancy seems totally unjust to me. It should not be that two similar cases can get such disparate results.

One independent trustee we spoke to about the first case said they are seeing more and more cases like this – where the main benefit of the proposal is being reduced to the elimination of interest, as opposed to an additional slashing of the original debt load.

The lesson here is to be very careful about what you agree to if you are contemplating a consumer proposal. I can tell you that had the first clients come to us first, we would have represented their interests to a suitable trustee and NEVER agreed to the kind of payment structure they were put into.

And I don’t think anyone benefits, since if they miss three payments, it’s all for naught and the proposal will be voided.

If you want to speak with someone first, before you trundle off to see a trustee – get in touch!

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