The Cost of a Consumer Proposal
Subject: What Fees are Associated with Consumer Proposals
I’d like to gain a clear understanding of the trustee fees associated with a consumer proposal. I understand the values are set out by the government, however, I am confused as to how they are applied. Take for example if I was to offer 50 cents on the dollar for 40k of debt. Would my payments be a total of 20k with trustee fees taken from this money. Or would it be 20k over X period of time distributed to the creditors plus added trustee fees. Is there an initial fee? If the creditors reject the proposal am I on the hook for the fee? If I need to amend the proposal for my creditors satisfaction do I pay again for a revised proposal?
Thank you for your help.
Reply From Colleen Craig:
So, I understand that this is a complex area. I can tell you what the Bankruptcy and Insolvency Act (BIA) says about fees of a trustee, and how we apply these fees in practice.
First the BIA is a federal statute and therefor applies across Canada. If you want to file a consumer proposal you must seek the services of a Licensed Insolvency Trustee (formerly Trustee in Bankruptcy).
The Trustee can charge,
Per Rule 121 and 131 of the BIA
Administrator’s Fees and Expenses in a Consumer Proposal
129 (1) For the purposes of paragraph 66.12(6)(b) of the Act, the fees and expenses of the administrator of a consumer proposal that must be provided for in a consumer proposal are as follows:
(a) $750, payable on filing a copy of the consumer proposal with the official receiver;
(b) $750, payable on the approval or deemed approval of the consumer proposal by the court;
(c) 20 per cent of the moneys distributed to creditors under the consumer proposal, payable on the distribution of the moneys;
(d) the costs of counselling referred to in subsection 131(1);
(e) the fee for filing a consumer proposal referred to in paragraph 132(c);
(f) the fee payable to the registrar under paragraph 3(b) of Part II of the schedule; and
(g) the amount of applicable federal and provincial taxes for goods and services.
131 (1) For the purposes of paragraph 66.12(6)(b) of the Act, the fees and expenses in respect of counselling are $85 per session if counselling is provided on an individual basis, and $25 per person per session if counselling is provided on a group basis.
OK, so great. What does all that mean to you the debtor about how much it costs to file a Consumer Proposal.
In our practice, the fees that we charge comes off the offer to creditors. If you offer them $555 per month for 36 months, (or $20,000) then that is the full amount that you would pay to us, including the original $750, if the creditors accept your proposal as filed. They may come back and ask for more per month over a longer period of time, but it is up to you to decide if you want to accept their counter proposal or not. So, if your offer is accepted, then the full amount you would pay to us is $18,000.
If the creditors reject your offer (and no agreement can be reached) then we keep your $750 as an outright fee. This is one of the reasons why we only file Proposals where the debtor feels that they can make the payments and we feel that the creditors are likely to accept it, as it can be an expensive process if there is no real ability for a settlement.
However, we very rarely ever find that creditors say NO outright to any offer. If a creditor does not like your original offer, 99.9% of the time they counter offer vs. just saying NO. It is up to you the debtor to determine if you want to accept their counteroffer or not. There is one creditor who offers an exception to this rule which is the Canada Revenue Agency who will, at times, simply vote NO because they need to uphold the “integrity of the Canadian Income Tax System” or some such. However, this is generally reserved for debtors who owe them a great deal of money and not your average debtor. However, there are many offers that we do to CRA that are accepted.
So, in your case If your debt is for $40,000, we would first start by doing a budget for you and your family to see what you can afford to pay. It does not make any sense to put someone into a Proposal that they cannot afford. So we do a budget for you and together we decide what you can pay each month. The Consumer Proposal has to offer better returns for the creditors than they would get in a bankruptcy, so we start off with that calculation. If you have NO surplus income (which is a whole other topic) and so your creditors would not receive anything if you went bankrupt, then there is greater flexibility for your offer to the creditors as the bankruptcy alternative gives them nothing. The maximum amount of time that you can be under a Consumer Proposal is 5 years so, keeping our example in mind, we determine that you can afford to offer your creditors $555 per month for 36 months (we often start out our calculations at 36 months especially when there is no surplus income) or $20,000.
Distribution to creditors would be as follows (estimated)
Total Payment to Trustee $20,000
Registration fee / court fee if applicable $100
Trustee’s Fees/ counselling fees (all) $5,319
Superintendent’s Levy $716
Net amount payable as dividends $13,599
Total Debt $50,000
Estimated Percentage Distribution 27.20%
So we in practice charge the $750 to start the Proposal process. Generally, depending on the individual’s ability to pay, we break these up into two payments. $ 400 when you come for your sign up and then the balance 45 days later when all of the voting is done by the creditors. By the 45-day mark we will know if the creditors will accept the proposal as filed (we generally get about a 70 % acceptance rate right off the top) while for the balance of the Proposals (the remaining 30%) the creditors ask for more money to be paid into the proposal by the debtor or for payments for a longer period of time, or both. Once all the votes are in on day 45, you the debtor will know if your proposal is accepted as originally filed or if any counter proposal offered by the creditor is acceptable to you or not. If you decided to not accept the counter proposal, then really your only option is to declare bankruptcy at this point. You can’t file another Proposal on these debts; which is also another reason why we try to ensure the Proposal terms offered are really something you can afford over the long term.
It is important to understand, that acceptance of the proposal is based on 50% of the creditors who actually cast a vote – not 50% of your entire group of creditors. So if Bank A votes yes and their debt is $10,000, but Bank C votes NO and their claim is for $5,000, (and none of your other creditors vote) the Proposal is accepted as filed because Bank A has 66% of the votes cast. Further, in no creditors vote, it is Deemed Accepted at 100%.
Hopefully this helps a bit. And please understand that each individual situation is different and the foregoing is just a sample situation.