519-646-2222Formulas for Proposals
There are no “magic” formulas for proposals – I often see and hear leader advertisements from other LIT offices with suggestions that you can write off 80% of your debt or they can fix your problems in 15-30 minutes. While both promises contain elements of truth, they also both exaggerations.
Let’s start with the time it takes – 15-30 minutes is barely enough time to make a contact and suggest a solution. However, it is not enough time to properly explore your situation, to fill in an application, and to fully assess your situation. The advertiser will always require a longer a follow up meeting, will always want you to gather more information, and most importantly will probably not be able to provide accurate feedback without more information.
Now on to the 80% debt reduction – while that is probably very close to being statistically accurate is not a “feet to the fire” measure. Some people will even pay 100 cents on the dollar plus LIT fees while some folks will pay less than one cent on the dollar of claims against them. Everyone is different, everyone’s circumstances are different, and everyone’s proposal will be tailor made to them.
A person who is worth $15,000 in recoveries from a bankruptcy (from surplus income or sale of assets) would yield dividends of $5,471.25 for Creditors. The return for the creditors will be the same regardless of how much debt the Bankrupt has, so the higher the debt the lower the return.
By contrast the return to creditors from a person who pays $15,000 into a proposal will, after fees and disbursements, be $10,072.03 – nearly double the return from a bankruptcy. However, from a creditor perspective, would they rather wait 1.5 years (+/-) to get paid from a bankruptcy or keep the file open for 5 years to get paid from a proposal?
Institutional creditors (banks) are often more likely to accept a relatively low payment under a proposal than some other creditors. Personal creditors are frequently the ones who are most aggrieved and can be the least likely to vote in favour of a proposal – after all they feel betrayed by someone they knew – whereas institutional lenders are less concerned about feelings and tend to be more practical.
Your LIT can help guide you as to how mainstream creditors are likely to react to your proposal offering based on their experiences with other clients. Generally speaking, when the stakes are low (for the creditor) they are more complacent and likely to accept a lower payment offering, but when the write off will be higher they are more likely to push back and try to negotiate a higher dividend.
The trick is to find the right balance point between acceptability and do-ability. You can always offer more money to ensure the proposal is accepted at first blush, but can you sustain the payments over time? Whatever you negotiating style your offer must be sincere and meaningful for it to be acceptable, and remember no LIT can guarantee your proposal will be accepted.
To learn more about formulas for proposals call the office at (519) 646-2222