INFORMAL VERSUS FORMAL PROPOSALS
There is no substitute for a qualified professional bankruptcy trustee.
Last year we tried to help out a debtor out by assisting with the filing of an informal proposal. The offer to the creditors was set out in the form of an agreement and the supporting documentation suggested something like this:
If you choose this option there will be NO trustee fees and you will get about 30% of your money back; or
FORMAL CONSUMER PROPOSAL
If you choose this option there will be trustee fees and you will get about 15% of your money back; or
If you reject both proposal options the debtor will most likely file a bankruptcy and you will get 0% of your money back.
The informal proposal offering was rejected – even after we called the creditors to plead the case for accepting it. Most of the time informal proposals are rejected by institutional creditors even when they are offered by a credible source such as a bankruptcy trustee. Formal proceedings under the bankruptcy & Insolvency Act have more checks and balances and are preferred by most knowledgeable creditors.
An exception to the acceptance of “informal” proposals seems to be when they involve statute barred debts. Statute barred debts are debts for which time limitations have expired and the debtor can no longer be sued. Informal proposals are readily accepted when the debt is statute barred because the creditor has no hope of ever recovering the money through any legal process.
In our case the debtor did not want to file for bankruptcy so we floated the formal consumer proposal option and the creditors accepted it.