Consumer Proposals

We’ve talked about debt consolidation loans and credit counseling – both of these plans will only work if you can afford to repay 100% of your debt. If you can’t, but you think you can afford to repay a portion of what you owe then a proposal to creditors might be right for you.

Just like credit counseling, many people have never heard about proposals to creditors so they are a little suspicious that they sound too good to be real. Well, they are real and more and more people are choosing to file a proposal to creditors instead of filing bankruptcy.

Here’s how a proposal works: with the assistance of a licenced trustee in bankruptcy (like Hoyes, Michalos & Associates Inc, our sponsour) you offer to repay a portion of your unsecured debts. If your creditors accept your offer then the agreed amount is all you are required to pay. There’s no new interest, there’s no legal action permitted, you repay only the amount that was agreed upon.

Again, at this point, many people don’t understand how this can work – why would anyone accept less than 100% of what you owe them? Keep in mind that a proposal is an alternative to bankruptcy. If you can afford to repay 100% of your debt then your creditors won’t agree to accept your proposal. If however, you can’t afford to repay 100% of your debt the creditors my very well accept your proposal – the only catch is that you need to make sure you offer them more money than your creditors would receive if you filed for bankruptcy. Something is always better than nothing – proposals are a compromise that may allow you to pay something in exchange for not being forced into bankruptcy.

Who should file a proposal? Anyone considering bankruptcy should give serious consideration to a proposal as an alternative. We won’t kid you – a proposal will always cost you more money that filing bankruptcy. The basic idea is that you are offering to repay a portion of your debt so that you won’t be forced into bankruptcy. Therefore you are going to have to pay more.

The advantages of a proposal: it is a legal procedure that provides the same protection that you receive if you file bankruptcy – no wage garnishees, no lawsuits; it may dramatically reduce your monthly payments – remember there’s no interest being charged and you are only repaying a portion of your debt; it’s not bankruptcy. This last point is more subjective – some people just can’t stand the idea of filing bankruptcy and a proposal gives those people another choice.

The disadvantages of a proposal: it will cost you more than filing bankruptcy; it is a legal procedure so it will be very hard on your credit report (but no harder than bankruptcy); it may take up to 5 years to complete (depending on the offer you make to your creditors).

If you think that you can afford to repay a portion of you debts then a proposal to creditors may be right for you.

To find out more about proposals to creditors, we suggest you go to our sponsours website, www.hoyes.com, where you will find more detailed information about how proposals work and your specific duties and responsibilities if you file a proposal.

If we still haven’t described a solution that’s right for you: debt consolidation, credit counseling, or a proposal to creditors, then it’s time to consider whether or not bankruptcy will resolve your financial problems.

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