Canadians who are struggling financially but can manage to pay back a percentage of their debt may want to consider a consumer proposal.
Explore this page to learn how a consumer proposal gives your creditors a reasonable repayment and provides you with a fresh financial start.
Table of contents
- What is a consumer proposal?
- What’s the difference between a consumer proposal, a consolidation loan, and bankruptcy?
- What are the advantages of a consumer proposal?
- What are the disadvantages of a consumer proposal?
- How do I file a consumer proposal?
- Signs that a consumer proposal may be your best option
- Who qualifies for a consumer proposal?
- Get started with consumer proposals
- Read more about consumer proposals
What is a consumer proposal?
A consumer proposal allows you to get your finances back on track without going bankrupt. It is a formal debt management option that allows you to consolidate your unsecured debt and make an offer to your creditors to either modify how long you can take to deal with your unsecured debt and/or repay a percentage of what you owe. Even though creditors typically don’t recover everything they are owed, they are often motivated to accept a consumer proposal because they typically receive more of the debt owed to them than they would if bankruptcy was declared instead.
What’s the difference between a consumer proposal, a consolidation loan, and bankruptcy?
Consumer proposals and consolidation loans are forms of debt consolidation that allow you to make one monthly payment to your creditors instead of juggling multiple payments.
Consolidation loans are granted by banks or other lenders so you can pay off your credit cards and other debts with a new loan, resulting in you having one monthly payment, likely at a lower interest rate. You have to meet the requirements of the lender in order to qualify for monies being loaned to you.
Consumer proposals also allow you to negotiate the amount of your debt that you repay, and how long you have to pay it. They are not funded by new money you borrow. Instead, the amount you pay is determined by what you can afford, and there is no interest. Consumer proposals are administered by a Licensed Insolvency Trustee, and creditors play an active role in determining the conditions. Your credit cards, lines of credit and other unsecured debts are covered by your proposal. Filing a proposal shows up as an R7 on your credit report.
Bankruptcy results in you being released from the requirement to pay most of your unsecured debts (there are debts that cannot be discharged). In return, you will need to make payments to the LIT based on your family income and the value of any assets you have that are not exempt from seizure.
What are the advantages of a consumer proposal?
- You’ll likely repay only a portion of what you owe to unsecured creditors
- You decide what to offer the creditors based on what you can realistically afford to pay
- You can repay the debt in monthly payments over a period of time, or if you are able, you can make lump sum payments, all with the agreement of your creditors
- Your creditors cannot continue collection efforts or garnish your wages (with the exception of spousal and child support garnishments)
- Interest charges stop once the proposal is filed
- In most cases, you’ll keep all of your assets, including your car, your home, and your RRSPs (although you will be required to continue to make your loan payments for such assets)
What are the disadvantages of a consumer proposal?
- Knowing if a proposal will be approved by the creditors will take at least 45 days after you file the proposal, and there is no guarantee the creditors will accept your proposal or amendments you suggest
- The proposal may be refused by the creditors, and you might need to go bankrupt if the proposal is not accepted
- It may be difficult to obtain new credit while doing a proposal
- If there is a co-signer, the creditor may pursue payments from the co-signer
How do I file a consumer proposal?
You meet with a Licensed Insolvency Trustee (LIT), in-person, by video or phone, to share details of your personal situation, and working together, if you determine that a consumer proposal is a great option for you, draft the best possible proposal that works for both you and your creditors. Within 45 days after the trustee files your proposal, your creditors will decide whether or not to accept your proposal. In most proposals, the amount you have to pay is made in monthly payments to your trustee over an agreed-upon period of time that is no longer than five years. However, you can make a lump-sum payment or a combination of a lump-sum payment and monthly payments.
Signs that a consumer proposal may be your best option
A consumer proposal may be your best option to deal with your debt if:
- You are not able to meet your regular payments as they become due and you want to avoid going bankrupt
- You have to make extra payments to your trustee if you were to go bankrupt as your income is higher than the guidelines set by the government based on the number of people in your household
- You have equity in your assets that you want to keep, such as your home
- You have been bankrupt previously
To learn more about a consumer proposal, and to decide if it’s your best option, meet with a debt professional for a free, no-obligation consultation, in-person or over the phone.
Who qualifies for a consumer proposal?
Consumer proposals are federally regulated and you must meet certain requirements in order to be able to file. Requirements include:
- You must reside in Canada or own property in Canada
- You must be insolvent, which means that you cannot meet your obligations as they come due or you your debts exceed the value of your assets
- Your unsecured debts cannot be more than $250,000 (this amount does not include a mortgage payment)
Get started with consumer proposals
How does a consumer proposal work?
Learn about what you need to get started filing a consumer proposal with a LIT, what duties you are responsible for during the process, how long it will last, and more.
How much does a consumer proposal cost?
If you are struggling to make monthly payments to multiple creditors, discover how the consumer proposal process merges your debt into affordable installments that cost less than what you owe today.
Consumer proposal vs. bankruptcy
Bankruptcy should be considered a last resort for managing debt, and if you are able to pay off a portion of your debt, a consumer proposal may be the right option for you.
Read more about consumer proposals
Consolidation loans vs consumer proposals: Find the right debt consolidation solution for you
If you find that you are unable to continue making payments to your creditors, you could consider merging your debts into a single monthly payment. Explore which type of debt consolidation is right for you: a consumer proposal or debt consolidation loan.
The rise of consumer proposals in Canada
For Canadians who are able to pay back a percentage of their debt over a five-year period, consumer proposals are a great alternative to filing for bankruptcy. Discover why a consumer proposal might be a better option than bankruptcy if you can pay back some of your debts, and why creditors are motivated to participate in the process, even if it requires that they write off some of your debts.
When to consider a consumer proposal or bankruptcy during COVID-19
Canadians whose finances have been impacted by COVID-19 might be considering insolvency proceedings to find relief. Review this step-by-step debt relief guide to learn about whether you should file a consumer proposal, bankruptcy, or whether you can handle your debt with another solution.