Why would a bank accept a consumer proposal?

by Joel Sandwith on October 14, 2010

I’ve had a few conversations lately with clients who wish to offer a consumer proposal to their creditors instead of filing personal bankruptcy.  Each of these folks has their own reasons why they want to go this route – for one, it is to avoid a second bankruptcy, for another to be able to keep their house.  For another it is simply because they are working, and can afford to pay part of their debts.

In each of these conversations, a similar question came up:  why would the banks accept the proposal?  After all, in most cases, the proposal is saving the client 50% or more of their debt.  What is the motivation for the bank to accept this deal?  In at least one case, the client had tried to negotiate on his own with his banks.  One bank was willing to take a settlement of 70 cents on the dollar, but it had to be paid in full.  Since he doesn’t have that much money available to him, he couldn’t take the deal.  The other banks refused to help at all.  So, he asked, why would they take a consumer proposal?

It really comes down to this:  a consumer proposal is a formal arrangement, administered by a licenced trustee in bankruptcy, and it treats each creditor fairly.   This means that when a creditor, such as a bank, is offered a proposal they know that the trustee has worked with the person in debt to come up with a repayment amount that is affordable, and in which every creditor gets paid according to what they were owed – so a large creditor gets a fair ‘piece of the pie’.  They also know that if a consumer proposal is filed, it means that person is not filing bankruptcy, and that more money will be recovered.

The bottom line is this:  a consumer proposal can be an excellent alternative to personal bankruptcy for everyone involved.  If you are struggling to pay all of your debt, give us a call to determine whether a proposal is right for you.  We can be reached toll free at 310-PLAN.

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